Cash Isa savers lose £540million in a year thanks to inflation and low rates

Cash Isa savers lose £540m in a year as rising inflation wipes out ultra-low returns over the last 12 months

Cash Isa balances hit £316.2bn at the end of 2019-20 after £50bn was saved  This represented a four-year high as savers opted for the safe haven of cash Low rates over the last 12 months means money has been outstripped by inflation 

Isa savers have seen more than half a billion pounds wiped off the value of their savings in the last 12 months as the cost of living outstripped ultra-low savings rates.

The market value of tax-free cash savings hit £316.2billion at the end of the 2019-20 tax year, according to new figures from HMRC, after close to £50billion was paid into new and existing accounts.

It represented a £4.8billion rise on the amount paid into accounts in 2018-19, with the number of cash Isas which saw money saved into them increasing by 1.2million.

Close to £50bn was paid into new and existing cash Isas in 2019-20, per new HMRC figures

With March and the first few days of April seeing the start of the country’s first lockdown in the face of the coronavirus pandemic, extra lockdown savings helped push cash Isa savings to a four-year high.

However, record low savings rates means much of that money has been losing its value in real terms after inflation is taken into account.

Per data from the Bank of England, the average rate on cash Isas between March 2020 and April 2021 was 0.46 per cent, with tax-free rates at 0.4 per cent on average since last November.

Meanwhile over the same period consumer price inflation has been at 0.65 per cent, according to the Office for National Statistics, and has recently began to rise sharply.

Few available savings accounts still match or beat the current Consumer Prices Index reading of 1.5 per cent, a figure that is still below the Bank of England’s 2 per cent target and could spike further over the next few months.

As a result, although that tax-free cash pile of £316.2billion would have earned £1.46billion gross interest over the last year, after inflation was accounted for £540million would have been wiped off that money.

Next Page