A lost decade for starving Cash Isa savers after inflation outpaces low interest rates
Cash-Isas have failed to perform in the past decade as low interest rates caused savings to be eaten away by inflation.
Savers who put £ 10,000 into the average tax-free money Isa a decade ago would now have £ 9,772 – even after interest has been added, new research shows.
This is because the increase in the cost of living is greater than the interest on savings.
Isa losses: Savers who put £ 10,000 in the average tax-free money Isa a decade ago would now have £ 9,772 – even after adding interest, new research finds
Investigation by investment service AJ Bell shows that if you had the maximum of € 127,320 allowed in the average cash Isa since 2011, you would have € 133,037 after interest.
But once you factor in inflation, it would only be worth £ 124,857.
Base rate taxpayers can earn their first £ 1,000 in interest per year in a regular account without paying any tax by using their personal savings allowance. Taxpayers with a higher rate have an allowance of £ 500.
Isas’s average cash rate is now only 0.4 percent, the Bank of England says. It fell from 2.2 percent ten years ago.
The fall is much steeper than the general interest rate level as banks and building societies cut the interest they pay to savers. Ten years ago, the Bank of England’s base rate was 0.5 percent. Today it is 0.1 percent.
But some providers pay much less than the average on their cash Isas.
National Savings and Investment last year lowered the rate of its easily accessible Direct Isa from an above-average 0.9 percent to 0.1 percent.
Halifax pays even less at 0.05 percent for its easily accessible Isa Saver variable.
Those who put their money into the stock market, on the other hand, have fared much better.
The full Isa cash distribution put into a mid-performing fund investing around the world would be worth 57 percent more, at £ 196,079 after inflation.
The money you will need for the next five years should be cash. But money you don’t need could go to the stock market.
Here you are taking a risk with your money, but in the longer term you can expect stocks and stocks to outperform cash.