Savers face a decade of poor returns

In addition, Chris Williams, CEO of Wealth Horizon, warns that current savers are being bullied by banks and building societies over their cash ISA rates - being drawn into headline grabbing teaser rates in the run up to the ISA deadline which then vanish after a few months.

Williams said:

“Even the punchiest of predictions emerging from economists at the Bank of England have placed the base rate at 1.5% in 2020. The Monetary Policy Committee is in no rush to raise rates and even when it does, it is unlikely that this increase will be passed on directly by banks and building societies. As such, it could be closer to 2025 before savers see any real improvements to the interest rates they receive on their cash ISAs.

“In 2007, prior to the financial crisis, the average cash ISA rate was 5.5%, before slumping dramatically as banks cut interest rates to record lows. Last year, some cash accounts paid  less than 1%, equating to around just £1 interest on every £1,000 in savings. When you take into account inflation, these accounts are eroding people’s savings. A savings account that loses money – where is the logic in that?"

He added that the introduction of the New ISA (NISA) will allow some savers to move their funds between cash and investments more easily, but unless savers take an active interest in the management of their account, their money may be placed in default cash savings rather than potentially earning a better return through investing in the stocks and shares side of the NISA.

He concluded:

“People should never assume that the price they get when they open the account is what they will have for the lifetime of the ISA. Banks rely on the apathy of savers not to check their rates and drive down the returns that they offer existing customers, so that they can offer new savers preferential rates. It’s a vicious circle for customers who simply want their nest egg to be looked after and taken care of."