Almost all Brits understand the importance of cash ISAs, but considerably fewer care about finding the best rates. How to solve such an impasse?
Over half of savers have little idea about the rates they are getting from their ISAs, research shows.
There is also a considerable trend of apathy and inaction. Almost half of Brits have never switched ISAs to find better rates, while a quarter doggedly choose the ISA offered by their current account provider for ease and convenience.
Despite relatively few Brits knowing the exact ISA allowance, the advantage of tax-free savings is clear, and half intend to save into an ISA by April. The average amount is expected to be just over half the current cash ISA allowance, at £2,784.
Is it time to Brits to think again about providers? A host of high street providers are now offering on or around 3% for cash ISA savings. Santander’s 3.30% AER narrowly leads the way over the Cheshire Building Society's 3.16% and Nationwide's 3.10%, while the Halifax, Natwest and Principality ISAs also compete around the 3% mark.
Choosing the best single rate cash ISA (3.30%) will generate £91.87 in tax-free interest on this average amount of £2,784 over the next 12 months.
Investing in the Cheshire Building Society DirectSave ISA would return £87.97 – £3.90 less, while the Nationwide e-ISA would return £86.30 – £5.57 less. One of the cash ISAs at 3% would generate £83.52 in interest – £8.35 less.
And these marginal differences between cash ISA products becomes more pronounced as the amount invested rises.
But with Brits tending to prefer convenience and reluctant to constantly switch ISAs to find better rates, consumers may be tempted to think about how their ISA is likely to perform over several years rather than one.
Many of the advertised rates include temporary bonuses and subsequently revert to standard rates, which in some cases are considerably lower. As shown below, if the full cash ISA allowance (£5,340) was deposited, it would only take one month for the Cheshire BS and Nationwide ISAs to outperform the Santander ISA following its bonus expiry.
[See Which4U’s recent ISA savings guide: One Month Remaining, and the recent editorials on our Finance Blog: How ISAs Perform After One Year and The ISA Contagion]
Brits demonstrate a peculiar impasse with their savings. Only 3% believe that ISAs are not important. Yet it’s not a priority for many to find the best rates.
Why not compromise and make a considered choice of instant access cash ISA that is likely to perform well over a number of years? That way, you stand to lose out less from not switching provider every year and you will not be penalised so heavily for your loyalty.
Make a start by checking out Which4U’s savings guides and our ISA listings. We’re aware that we don’t list every product available, but we are concerned about sustained value, and we aim to provide the right information to help you choose the right ISA account. If you’re ready to make a switch, why not apply online?