ISA season returns with biggest rises seen in a decade

Our latest Treasury Report registered a number of rate increases for ISA deals on the market.

After a lengthy absence, ISA season is back around the end of a tax-year with the market seeing the highest uplift in average rates month-on-month in a decade.

Those savers who are comparing deals to utilise their 2022/23 allowance will find much better rates on average compared to a month ago, both for variable and fixed ISAs, according to the latest Moneyfacts Savings Treasury Report.

In particular, the average easy access ISA rate rose month-on-month to 0.38%. This is the biggest monthly rise since April 2012, and it stands at its highest point since June 2020 when the rate was 0.45%.

For fixed rate ISAs, the average one-year fixed ISA saw the biggest month-on-month rate rise since August 2011, rising to 0.87%. Sitting on an average rate of 0.87%, this is its highest point since May 2020 when the rate stood at 0.91%.

The improvement to the market over the past year is positive as it’s worth noting that rates fell to record lows in 2021. Compared to a year ago, both the average one-year fixed ISA and longer-term fixed ISA rates have more than doubled.

In addition to this, ISA product choice has grown year-on-year by 112 deals to 413, the first breach of 400 since March 2020.

Savers will be glad to see product choice overall has grown by 336 deals year-on-year. The total number of savings deals on the market, including ISAs, now stands at 1,676.

When compared to the average easy access savings rates, average easy access ISA rates remain 0.05% stronger.

Still, it is worth noting that the top deal on the market, the Chase Saver at 1.50%, is much higher than the current best easy access ISA deal at 1.05%. More details on these offers can be found on our tables.

However, it is a different story for fixed rate bonds. The average one-year fixed rate bond is now 0.19% higher than the average one-year fixed rate ISA bond.

In terms of specific deals, the highest-earning one year fixed bond on the market also beats the best one-year fixed rate ISA rate. These details can also be found on our tables or on our weekly savings and ISA round-ups.

Encouragingly for savers, both competition and the recent back-to-back Bank of England base rate rises are elevating interest rates across the savings spectrum.

The rate war that has raged within the top rate tables for both fixed bonds and ISAs month-on-month will be positive news for savers who want to lock their cash away for a higher return than they could receive on a variable rate.

However, whether someone is comfortable to invest longer-term with rising interest rates remains to be seen. Indeed, according to the Bank of England, there were notable outflows of funds in February from time deposits of £313 million and significant inflows into sight deposits of £3.5 billion.

As interest rates rise, savers may well wish to keep their money close to hand so they can switch quickly for a higher return, and thankfully, easy access accounts have seen notable uplift month-on-month. With a rise of 0.08%, this is the biggest rise since August 2007.

In the months to come, providers may well improve rates further, and we are already seeing competition return to this sector from challenger banks, some of which are paying 1% or more.

However, it may be some time yet before savers see variable rates return to pre-pandemic levels. Whether savers choose an easy access account or fixed, it’s important for them to be conscious of the shelf life of a deal, as this month the average shelf life of a fixed bond fell to 55 days, the lowest number of days since 2021.

Keeping a close eye on the market is crucial both for savers to secure a top rate, and for savings providers to keep ahead of the competition.