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Time running out for inflation-busting cash ISA rates

Time running out for inflation-busting cash ISA rates
Matt Browning
Written By:
Matt Browning
Posted:
06/06/2024
Updated:
06/06/2024

With the top one- and three-year fixed cash ISA rates falling, now is the time for savers to bag big, long-term returns before a potential base rate cut later this summer.

If you are retired and have seen your funds barely keep up with inflation, the money has arrived to make up for lost time.

One way could be to lock in to a market-leading three-year fixed rate ISA at 4.44% from Shawbrook Bank. This top rate marks a slight decline from January’s 4.65% leading offer, but is still a slower fall than the best one-year alternative.

The best shorter-term deal sank from 5.01% at the start of the year to 4.77% (offered by UBL UK).

The popularity of future-proofing rates is growing too – in April, the demand for three- and five-year ISA accounts from Shawbrook customers soared by six times the amount compared to the previous three months.

It’s a trend that bodes well for the one-third of over-55s planning to make the most of their savings when they stop working, according to Shawbrook’s survey.

Retirees can ‘solidify financial future’

Adam Thrower, head of savings at Shawbrook, described the move to longer-term fixes as “a clear opportunity for retirees to solidify their financial future”.

“Interest rates on longer-term savings accounts, both ISAs and non-ISAs between three and seven years, are fairly high and stable, but with potential future base rate declines on the horizon, locking in now could be a game-changer.”

As the base rate held at 5.25% for the sixth consecutive time in May, a cut has been predicted by many – including the International Monetary Fund (IMF) – to arrive this summer.

But with inflation figures for the 12 months to April slightly higher than predicted, at 2.3%, the date for the anticipated cut might yet be pushed back beyond the next 20 June vote.

This is a development that Anna Bowes, founder of Savings Champion, says is “bad news for borrowers but great news for savers”.

She added: “So make hay while the sun shines; take advantage of these rates while they are available, especially if you can lock some of your cash away with a fixed rate, as a base rate cut will happen at some stage, we just don’t know when.”

While Bowes is optimistic about the opportunities to earn plenty with generous rates over the summer, Thrower has reminded savers to be cautious.

‘Prudent’ to remember unpredictable nature of rates

He added: “It is prudent to remember the unexpected can always happen – if base rates do increase, savers who have fixed could jeopardise higher returns.”

“Don’t let the future of your retirement income depend on volatile interest rates. While this may be a time-sensitive opportunity to secure an element of your financial wellbeing, it’s important to understand the implications if interest rates were to unexpectedly rise.

“Talk to your adviser and explore the benefits of longer-term savings accounts.”