Average ISA rates show biggest monthly decline since 2009

Savings accounts have been flying high for some time now, but with continuous rate falls, savers will need to act fast to bag the top rates before they disappear. 

New data from Moneyfacts reveals rates on the best savings accounts are falling, with fixed ISAs and fixed savings accounts showing their biggest monthly rate cut since 2009. 

Despite 967 inflation-busting savings accounts on the market, there are now 100 fewer savings products on the market compared to a month ago. However, Rachel Springall, finance expert at Moneyfacts believes this shouldn’t stop savers from shopping around for the best rates. 

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“A new ISA season should also bring a flurry of activity from providers and, due to the interest rate rises of 2023 and upcoming ISA reforms, they may be in more demand from savers who are close to breaching their Personal Savings Allowance (PSA),” says Springall. 

It comes as the Bank of England froze the base rate at 5.25% for the third time, pushing lenders to slowly drop their savings rates. 

Find out what you can earn on the average ISA account, and if now is a good time to put your savings into an ISA. 

ISA rates slashed

According to Moneyfacts the average one-year fixed ISA fell for a consecutive month to 4.72%, the biggest month-on-month fall since March 2009.

Plus, the average easy-access ISA rate fell month-on-month to 3.25% and the average notice ISA rate fell to 4.18%.

But it isn’t all bad news. As it stands, the average one-year fixed ISA rate is still considerably higher compared with a year ago, when the average was 3.51% and the rate on the average easy-access ISAs was at a low of 1.66%. 

That said, savers will need to act fast to bag the top ISA rates, especially with the new tax year around the corner, starting on 6 April 2024, as lenders are pulling top products and dropping rates. 

Data by Moneyfacts shows there are 46 fewer ISA options on the market compared to December 2023. 

Also, MoneyWeek has been tracking the best ISA rates and has found that 15 fixed ISAs have dropped rates just this month (including ISAs fixed for one to three years), and five products have been withdrawn. 

Easy-access ISAs have been falling at a slower rate, with only two deals dropping in rate this month so far: 

• The Metro Bank Instant Access Cash ISA fell from 5.11% AER to 4.51% AER on 16 January 2024. 
• The Principality BS Online Bonus ISA dropped its rate from 5.06% AER to 5% AER on 4 January 2024. 

Currently, these are the top ISA rates on the market. 

You can still earn more than 5% on an easy-access ISA and a one-year fixed ISA, similar to a traditional easy-access and fixed savings account. 

But an ISA might be the better option for many as more than a million savers are due to pay tax on savings interest earned, due to high rates. An ISA shields £20,000 from the taxman, per tax year. 

What does the fixed savings market look like? 

Moneyfacts data also shows the average one-year fixed bond fell for a third consecutive month to 4.87%. This is the first time the average has dipped below 5% since July 2023.

“The significant cuts seen across fixed rate bond and fixed ISA rates month-on-month are the biggest recorded in almost 15 years. This will no doubt come as a shock for savers who use these accounts to earn a guaranteed return on their hard-earned cash and have waited a couple of months to invest,” Springall adds. 

MoneyWeek has seen 25 savings providers cut the rates on one-year fixed bonds in the new year, and four deals pulled. 

This includes Metro Bank’s top-paying 5.66% fixed saver which got pulled as we entered the new year. 

Currently, the top one-year fixed saver is from SmartSave, offering 5.16% AER on a minimum deposit of £10,000.