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Savers lose £65 a month as cash Isas fail to beat inflation

·2-min read
man chasing money
man chasing money

Cash Isa savers are losing £784 of their wealth a year as interest rates fall even further behind the rate of inflation.

Interest rates on cash Isa deals have improved in recent months but have failed to match the rising cost of living. The average easy-access cash Isa rate now stands at 0.45pc, compared to 0.22pc last May, according to Moneyfacts, an analyst.

Meanwhile the Bank of England announced today that inflation hit 9pc in the year to April, a 40-year high. This means £10,000 saved in the average cash Isa would effectively lose £65 of its purchasing power each month, earning just £3.75 in interest. Over a year this would cost £784.

Savers with standard savings accounts will fare even worse. Although easy-access savings rates have increased from 0.16pc to 0.39pc in the last year, £10,000 in the average account would lose £790 of its purchasing power over a year.

However, those tempted to lock in to better-paying fixed-rate accounts could potentially lose out if Bank Rate was to rise further.

One-year fixed-rate bonds saw their largest monthly rise in a decade this month, of 0.18 percentage points to 1.24pc. £10,000 in the best-paying one-year bond, from Al Rayan bank offering 2.26pc, would still lose £618 of its purchasing power over a year.

Anna Bowes of analyst Savings Champion said: “With inflation expected to rise further, it could be possible that there will be further Bank Rate increases to come, which in turn could push savings rates higher still.

"In the meantime, there will hopefully be some increases still to come from providers following the most recent rise, as there tends to be a lag between an announcement and any rate changes that occur as a result.

Meanwhile the number of savings deals offered by banks and building societies has grown by 279 deals since last year, to 1,685, the highest since March 2020.

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