The era of high-interest savings accounts in the UK appears to be concluding, as top Individual Savings Account (ISA) rates have fallen below the 5% threshold. Financial experts are urging savers to act swiftly to secure the best available deals before further reductions occur.
According to recent Moneyfacts data, the highest rate for an easy-access cash ISA has decreased from 5.07% in August to 4.93% in September 2024. Similarly, the most attractive one-year fixed-rate ISA has dropped from 5.05% to 4.8%. Currently, only Junior ISAs and Lifetime ISAs continue to offer interest rates of 5% or higher.
Despite this decline, savers can still find rates exceeding 5% in traditional bank accounts. Ulster Bank provides the top easy-access savings account at 5.2%, while DF Capital offers a notice account with 5.13% interest. These rates represent a significant improvement from two years ago when the best rates were 2.1% and 1.85%, respectively.
ISAs have gained popularity among savers seeking to shield their earnings from taxation. These accounts allow individuals to save up to £20,000 annually without incurring taxes on the interest earned. In April 2024, families deposited an additional £11.7 billion into ISAs, marking the highest monthly total since records began 25 years earlier.
The recent decline in savings rates follows the Bank of England's decision to reduce interest rates from 5.25% to 5% in August 2024, the first cut in over four years. This move came as inflation remained steady at 2.2% in August, making further immediate rate cuts unlikely.
Rosie Hooper of wealth manager Quilter Cheviot commented:
"The latest Moneyfacts data reveals a sobering reality for savers – the era of high interest rates is officially over. With easy access cash ISAs dipping below the 5% mark, there are almost no ISAs offering that coveted 5% interest rate."
Caitlyn Eastell from Moneyfacts advised savers to act promptly, stating that a significant portion of the ISA market still offers rates close to 4%. She emphasized the importance of securing attractive deals before potential further rate reductions.
It's worth noting that the UK's inflation target is set at 2% by the government, and the Bank of England has been independently setting interest rates since 1997. The current situation presents a challenging environment for savers, especially considering that the highest Bank of England base rate reached 17% in 1979, while the lowest was 0.1% in 2020 during the COVID-19 pandemic.
As the financial landscape evolves, savers should remain vigilant and consider diversifying their savings strategies. The Financial Services Compensation Scheme protects up to £85,000 per person, per financial institution, providing a safety net for cautious savers in these uncertain times.