Yesterday, the Consumer Prices Index (CPI) measure of inflation held at 2% for the second consecutive month in June, during a time when variable and fixed rate ISAs continue to grow.
The leading three-year fixed rate ISA last month was 4.5%, offered by Principality Building Society, but the mutual has since upped that to 4.6% this month, Moneyfacts data finds.
All of the top fixed rate ISAs on the market either held on June’s top rate or grew, with West Brom Building Society (5.1%) and Trading 212 (5.07%) reigning for notice and easy-access ISAs respectively.
The number of products for savers to choose from is the most it’s been since 2012, and there are 1,638 savings accounts that beat the CPI rate of inflation.
Those accounts are divided between 284 easy access, 164 notice accounts, 216 variable rate ISAs, 310 fixed rate ISAs and 664 fixed rate bonds.
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Elsewhere, the top rates in the bond market have fluctuated, with the best four-year fix in July being UBL UK’s 4.54% rate, a drop from June’s 4.75% from Isbank (Raisin UK).
However, the most competitive one-year fix has shot up to 5.4%, thanks to the Union Bank of India, a rise from the 5.21% offered by Vanquis Bank in June.
Looking back to July 2023, there were no deals that could match the 7.9% inflation rate at the time, which was the same case a year before with the 9.4% rate.
‘Make the most of current top rates’
Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, believes savers can use the current inflation rate to “earn more cash in real terms”.
But with a base rate cut from the Bank of England expected late this summer, she says it is crucial that savers are willing to switch when more enticing deals enter the market.
Eastell said: “Fixed rates are continuing to drop and are significantly lower than they were a year ago; savers who are about to have their one-year fix expire can now expect to receive almost 1% less interest compared to the market leader in July 2023.
“Despite this, savers should still make the most of current top rates as appetite to secure longer-term deals picks up and to keep on top of inflation and base rate for longer.
“Within the ISA market, the top fixed rates have been volatile. Two- and three-year fixes have benefitted the most with new market-leading rates, which may be positive news to those looking to make the most out of their ISA allowances for longer.”
Eastell added: “But if consumers are comfortable with the risk associated with a variable rate, then there are still a handful of competitive deals available paying around 5%.
“It is possible that a new Government may well decide to change existing tax savings allowances or policies; savers with bigger pots could see a cap put on the amount that can be earned tax-free. Many may be hopeful for the ISA allowance to rise from £20,000, as this has been unchanged for years. However, these changes are yet to be seen.
“It is as crucial as ever that savers keep monitoring their savings to ensure that they are being rewarded. In any case, savers should consider any relevant criteria to ensure the account is suitable for their needs.”
