Cash ISAs resist falling rates

Average fixed ISA returns maintained stability, and even saw month-on-month increases in August.

As average fixed savings rates fell month-on-month, ISA counterparts showed signs of resilience, according to data from the Moneyfacts UK Savings Trends Treasury Report.

The rate paid by an average one-year fixed bond dropped from 4.65% in July to 4.63% at the start of August, while one-year fixed ISAs saw average returns increase from 4.44% to 4.46% in the same period.

Meanwhile, the average longer-term bond (with terms over 550 days) experienced a larger fall from 4.16% to 4.13%, as the equivalent ISAs held at 4.08% from July to August leading up to the base rate announcement.

On 1 August, the Bank of England’s Monetary Policy Committee (MPC) lowered the UK’s central interest rate from 5.25% to 5.00%, marking the first reduction in over four years.

“Our savings trends that were observed prior to the cut revealed an interesting split in how providers were re-adjusting their market positions with rate tweaks prior to the announcement,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

How have variable rates fared?

Meanwhile, average variable rates for both savings and ISAs rose month-on-month across the board.

Average easy access returns rose to 3.14% by the start of August while rates for easy access ISAs climbed to 3.36%.

The same trend can be seen in the notice sector where average savings rates only rose by 0.01 percentage point to 4.30%, while the notice ISA average increased by 0.03 percentage points to 4.22% - its highest point so far this year.

“It will be interesting to see how both the average rates and overall product availability will be impacted by the base rate cut in the coming months,” commented Springall.

Following the cut, it’s likely variable rates will fall as providers quickly pass on the reduction to savers.

It’s therefore worth monitoring your accounts closely and consider switching if more competitive rates are being offered elsewhere.

Is a fixed ISA worth considering?

Ultimately, the choice to switch will largely depend on your individual savings needs such as how often you’ll need access to your money and how much you can afford to save.

Despite many providers cutting top rates, product choice overall rose again month-on-month to 2,024 deals (including ISAs) in August.

This marks the highest count since April 2012, and a consecutive rise from the previous period from June to July.

“This would be a great opportunity for savers to review their accounts and switch if they feel they are not being rewarded for their loyalty,” noted Springall.

With variable rates likely to drop following the base rate cut, savers may now want to consider locking in a fixed rate.

No matter what account you choose, it’s important that you take action and consider whether you’re still receiving competitive returns on your savings.