Savers abandon cash Isas as interest rates plunge and pour money into easy-access accounts
Savers are fleeing cash Isas and pouring money into easy-access accounts instead.
Around £1 billion was withdrawn from cash Isas between March and April this year. By comparison, £21 billion flowed into easy-access accounts.
Experts say that plummeting interest rates are partly to blame.
Around £1bn was withdrawn from cash Isas between March and April this year. By comparison, £21bn flowed into easy-access accounts
The top easy-access deal currently pays 1.05 per cent, compared to 0.9 per cent with its tax-free equivalent.
Cash Isas work largely in the same way as ordinary savings accounts. The one big difference is that your interest is automatically paid tax-free.
Under government rules, you can invest up to £20,000 each tax year (which runs from April 6 to April 5) — or £9,000 in a junior Isa.
Such a loss of interest in Isas in spring is very unusual. Typically, in March, savers rush to use up their Isa allowance before it runs out.
But this year savers withdrew £311 million from cash Isas in March and £799 million in April.
By comparison, during the same months last year, they added £1.5 billion and £2 billion respectively.
The recent withdrawals are the second worst hit to cash Isas since the scheme was introduced in April 1999.
Any hopes of a rise in cash Isa rates were dashed when the pandemic hit. And in its wake, Isa rates have fallen even faster.
The average rate on an easy-access cash Isa for new savers has tumbled by 49.4 per cent, while fixed rates are down by a third. NS&I pays the best cash Isa rate at 0.9 per cent.