Savings rates have been falling since the last base rate announcement, and experts warn they are likely to drop even further in the coming months.
After the Bank of England’s Monetary Policy Committee (MPC) voted to cut rates by 0.25 per cent to 4.25 per cent earlier this month, many providers have been rushing to re-price their offerings.
This includes ISA rates which have come under heavy scrutiny following rumours Rachel Reeves is planning to cut the limit from its current annual level of £20,000.
Now the average easy access ISA rate has fallen slightly to 3.02 per cent from 3.34 per cent the same time last year.
Meanwhile, the average notice ISA rate has dropped to 3.71 per cent from 4.71 per cent in the same period.
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Although the falls have been minor in the past month, experts warn more cuts are to come across both ISA and other savings rates.
Rachel Springall, finance expert at Moneyfacts, said: “Savers will be disappointed to see all fixed rates fall across the spectrum month on month, which has not occurred for six months.
“The reduction in the average longer-term fixed bond and ISA rates noted the most significant falls for over six months, and is a disheartening turn of events after they rose above 4 per cent at the start of April.
“This demonstrates the volatility in future rate expectations, with rates expected to fall even further due to the recent cut to the Bank of England base rate.
“Cash ISA rates have fallen but savers would be wise to take advantage of their ISA allowance regardless of any rate volatility in the months to come.”
It comes as recent research from the Financial Conduct Authority revealed that one in 10 people have no cash savings and another 21 per cent have less than £1,000.
Cost of living pressures mean consumers need to shake any apathy aside and start building a healthy habit that provides attractive returns to avoid receiving a raw deal, experts say.
Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, said: “Savers who have invested in a fixed bond over a longer period will be pleased to see that they can receive much better returns now compared to when they initially locked away their cash, but the top one- and two-year rates have dipped significantly, which could lose savers as much as £136.”
This is why savers should think about locking in rates sooner rather than later before they drop even further as experts have predicted.
Speaking to The i Paper, Andrew Hagger, personal finance expert from Moneycomms.co.uk, said that he is expecting to see another couple of base rate cuts before the year is out, which means ISA rates will continue heading in a downward trajectory as the year progresses.
He said: “I think it’s unlikely that any changes to the current ISA rules, even if they announced this autumn, will come into force until the next tax year but with the Chancellor still pushing the faster and further mantra, you never know what she may pull out of her hat.
“If you haven’t used your ISA allowance for the current tax year but have funds available, I think it would be a wise move to lock in now and secure a decent rate while you still can.”
Anna Bowes, personal finance expert at The Private Office, said: “An interesting recent development is that the rates on all terms have become closer aligned lately, making longer-term fixes more attractive than they have been for a while.
“This could be welcome news for savers who were previously reluctant to lock their money away due to lower long-term rates.
“With the recent uptick in inflation, even though further base rate cuts may be delayed, the overall trajectory still seems to be downward.
“So, if you choose to lock in now, you might be glad you did when your bond matures in a few years’ time and rates have dropped further.”
James Blower, founder of The Savings Guru, added: “ISAs are likely to continue to fall back as expectations are that base rate will be cut at least two more times this year, if not three, and will settle at 3.5 per cent in 2026.
“However, the good news for savers is that there are several non-bank providers fighting it out for savers cash and this is keeping ISA interest rates higher than they’d be otherwise, given the outlook for rates.”
Savers are not being deterred by the talk of threats to cash ISA allowances, Blower pointed out, in fact the opposite.
He added: “We are seeing record amounts poured into cash ISAs – over £401bn now held in them – as savers flock to maximise their allowances in cash there are changes to limits in future years.
“We know that the Chancellor is reviewing ISAs and that there’s likely to be changes to them in the autumn Budget.
“While this tax years allowances won’t be impacted, I do expect changes for the 2026-27 tax year and there’s certainly a risk that the amount which can be saved in cash will be reduced.”
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