Average savings rates for ISAs are on the floor.
Data provider Moneyfacts found the average easy access ISA rate at the start of June had tumbled to a low of 0.45 per cent from 0.85 per cent in January. So, £1,000 invested would produce an annual return of just £4.50.
On the same basis one-year and longer-term ISA returns had sunk to below one per cent for the first time since 2016, having fallen by 0.4 percentage points and 0.44 percentage points respectively.
Moneyfacts said this demonstrated that the savings market had “continued to deteriorate” after ongoing uncertainties surrounding coronavirus as well as cuts to the base rate from 0.75 per cent to 0.25 per cent on March 11, and to 0.1 per cent on March 19.
All aided and abetted by the Bank of England pumping billions of pounds into the economy through quantitative easing.
Rachel Springall, finance expert at Moneyfacts, warned of further cuts if providers see an increase in cash deposits in the coming months – quite likely given the panic in some quarters at the Stock Market losing roughly a third of its value at the peak of the lockdown.
She told FT Adviser: “Providers are facing an influx of deposits and need to quickly manage the flow of cash by adjusting the rates in their range.
“Indeed, with the unsettled landscape the coronavirus pandemic has instilled, savers may wish to have an emergency fund built up that they can access quickly for peace of mind.
“Easy access accounts continue to be a firm favourite among savers, but more so for their convenience than for the interest they can earn.”
It should, she added, spur savers into switching.
But, if your savings goals are short term, into what?
Many in this category see the stock market as too risky. And the advice is that investing in equities does entail a medium to long term approach, building diversified portfolios.
Premium Bonds might make you 1.4 per cent if you feel lucky.
In April peer to peer lender Sourced Capital predicted the average instant access savings rate could slow to just 0.15 per cent, slashing its yearly return to just £1.50 – a 62.5 per cent reverse – while the average variable rate ISA could drop to 0.44 per cent, reducing returns to £4.40, a fall of 48.24 per cent, close to where Moneyfacts says they are now.
Stephen Moss, MD of Sourced Capital, commented: “A very bleak outlook ahead for those trying to save, with many not only facing a reduction in income over the coming months but a pitiful rate of return on any savings they have tucked away. There’s a good chance you could accumulate more interest finding loose change on the street than you have via the mainstream savings products over the last year, and this looks set to get even worse for the immediate future.”
The flowery language perhaps a little over-stated, but not much.
However, there is one category of ISA which sounds particularly seductive. The “innovative finance” ISA, aimed at peer-to-peer lending and crowdfunding, was launched in 2016, joining cash ISAs and stocks and shares ISAs.
The inducement is returns as high as 10-12 per cent per annum, but your capital is at risk and peer-to-peer isn’t covered by the Financial Services Compensation Scheme.
Indeed, that same year, the former City regulator Lord Turner told the BBC: “I strongly suggest that the losses on peer-to-peer lending which will emerge in the next five to 10 years will make the worst bankers look like absolute lending geniuses.”
So, you have been warned. Be very careful.