Record choice for savers looking to open an ISA before the tax-year ends

But interest rate cuts threaten to diminish returns.

Savers wanting to make the most of their annual ISA allowance before the tax-year ends have a record number of products to choose from after new accounts hit the market in the month to February.

This is according to the latest Moneyfacts UK Savings Trends Treasury Report, which revealed the total number of cash ISAs rose to 582 by the start of this month – its highest count since Moneyfacts’ records began in 2007 and a considerable uplift from the 500 available in February 2024.

Do ISAs offer competitive rates?

Two cuts to the Bank of England base rate in the latter half of last year caused savings rates to suffer.

Nevertheless, returns on ISAs made a slight recovery at the start of this year, with the average rate paid by an easy access ISA rising from 3.03% to 3.05% between January and February.

Likewise, the average returns on a one-year fixed ISA increased marginally from 4.07% to 4.08%, and the rate paid by a typical longer-term fixed ISA from 3.90% to 3.94%, over the same timeframe.

By comparison, the average rate paid by an easy access savings account also improved month-on month but stands at a slightly lower 2.90%, while the average returns on a one-year and longer-term fixed bond rose to 4.19% and 3.97%, respectively.

Although “encouraging” to see rates trending upwards, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, warned “any swift celebration will be dampened by anticipated savings rate cuts” after the UK’s central interest rate was lowered again earlier this month and swap rates began to fall.

Savers concerned about declining returns may feel compelled to lock in a competitive fixed rate quickly; this sense of urgency is compounded by the fast-approaching deadline to utilise this year’s £20,000 ISA allowance before it automatically resets at the start of the new tax-year.

Tough conditions for challenger banks

Increased competition in both the savings and ISA markets should benefit consumers as new arrivals and lesser-known brands tend to offer more attractive rates to entice customers and garner publicity.

However, Springall said the months ahead pose a challenge for providers and it will be difficult for them to “keep ahead of their peers” while also “adjusting their rates as interest rates are expected to fall”.

Whichever account they choose, she encouraged savers to regularly review their pots to make sure they’re seeing “a real return against the eroding impact of inflation”, which is expected to rise further this year.