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How will inflation affect ISA season?

Emma Lunn
Written By:
Emma Lunn

Inflation jumped again this month and continues to diminish the true spending power of savers’ cash.

According to the Office for National Statistics (ONS), inflation went up to 10.4% in February, the first rise after three consecutive months of decline. CPI inflation stood at 10.1% in January.

In January, Prime Minister Rishi Sunak pledged to halve inflation by the end of the year. Currently, the Bank of England expects inflation to fall to just under 4% by the end of the year while the Office for Budget Responsibility (OBR)’s forecast is more optimistic, predicting an inflation rate of 2.9% by the end of 2023.

Rising inflation makes shopping around for the best ISA you can find even more important. However, there are no cash ISA deals on the market that allow savers to beat inflation.

Move quickly before tax year ends

However, according to Moneyfacts, providers are making notable improvements to ISAs as we edge closer to the new tax year, so it’s vital savers take note of the latest offers to hit the market and move quickly to take advantage.

Rachel Springall, finance expert at Moneyfacts, said: “Those savers who are coming off a one-year fixed bond or ISA will notice rates are much higher today for an equivalent deal.

“Both the top one-year fixed bond and one-year fixed ISA paid less than 2% a year ago, however, today the top deals pay 4% or more. This will be great news for savers who prefer to make a lump sum and even take interest as a form of monthly income.”

Accept the challenge(r)

Challenger banks continue to offer the best ISA rates, but they often move quickly to pull a deal in high demand, as they typically focus on securing balances to fund their future lending.

The best one-year fixed ISA is currently offered by Charter Savings Bank with a rate of 4.1%. If you want to fix for longer, Gatehouse Bank and Santander both offer an expected return or interest of 4.2% on two-year fixed ISAs. But you won’t get more interest by opting a three-year fixed ISA at the moment – the best rate is 4.2%, offered by Close Brothers Savings, Gatehouse Bank and Santander.

Savers who prefer to keep their cash in a flexible or easy access ISA account must still take time to check their interest rate regularly, especially to establish if their provider has not passed on base rate rises.

Savers only have until 5 April to use their ISA allowance of £20,000 for the 2022-23 tax year. However, most savers also have their Personal Savings Allowance (PSA) to use too.