Cash ISA savers in denial about poor interest rates

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Rising interest rates and the cost-of-living crisis have prompted more people to check the interest rate they’re actually getting on their cash ISA savings. Our research* shows that half of people with a cash ISA have checked the rate they’re getting in the past year, compared to just a third of people a year ago. When the research was carried out in 2021, 13% of people said it was between six and 10 years since they’d checked their interest rate, but the most recent data shows that has now dropped to just 2%.

With bills and food costs soaring people want to maximise the return they’re getting on their cash, prompting them to check what interest rate they’re actually getting. What’s more, the Bank of England has increased the base rate twice in the past few months, meaning that savings rates have nudged up – providing a timely reminder for people to check their savings aren’t earning zero.

However, it’s not all good news. While people are checking their rates, most people still aren’t moving to new providers to get a better deal. There are still more than two-thirds of people with a cash ISA who have never moved to a new provider to get a higher rate. More than half of people who had never switched blamed this on the measly rates on offer, saying that interest rates were too low to make it worth their while to switch.

It’s true that the current low rates on offer don’t inspire people to be able to make a king’s ransom by switching. But the process of transferring an ISA to a new provider is far quicker and easier than it used to be, so people with a decent level of savings can make a fair return from not much work. For example, someone with £20,000 of savings who switches from a cash ISA paying nothing to the current top rate of 0.77%** could earn £154 for their trouble. If someone had higher savings of £50,000 they’d get £385 a year extra in interest.

Despite the past year seeing more people engage with their cash ISAs, one in five people questioned still have no idea what interest rate they are getting on their savings. On average people thought they were earning 0.5% interest, but a quarter thought their rate was higher than that. In reality, the average interest rate paid on easy-access cash ISAs over the past year was 0.2%***, meaning that lots of people probably think they’re getting more interest than they are.

The general rule of thumb is that if you’ve had your cash ISA for more than a year you can probably get a better rate elsewhere. This is because providers often offer an initial high rate or bonus rate that expires after 12 months. But this is more true than ever this year, as Bank of England rate hikes have pushed cash ISA interest rates up, meaning that most people can probably make their ISA savings work harder for them.

Of course rates are still low and inflation is high and creeping higher, meaning that no cash account is going to keep pace with the rising cost of living. More people might be able to benefit from investing their money rather than keeping it in cash, if they don’t need to get their hands on the money soon. But when asked about switching their Cash ISA into a stocks and shares ISA, almost three-quarters of people said they had never considered doing it. This rose among women, with 80% saying they hadn’t considered it, and among older people, with 82% of those over the age of 55 saying they hadn’t thought about switching compared to 59% of those 18-34 years old.

However, when quizzed about the reasons why they hadn’t switched only 12% of people said they needed access to their cash soon, showing that there could be lots of people where investing could be well-suited. The most popular reason was that investing was too risky (34% of people) while a quarter just said they prefer to stick to cash and another 22% said they don’t understand investing.

Approximately when did you last review the rate of interest you are getting in your Cash ISA?
2021 total 2022 total
In the last year 34% 50%
1-5 years ago 39% 28%
6-10 years ago 13% 2%
Over 10 years ago 1% 1%
I have never done this 9% 11%
I don't know 4% 8%
Average 2.5 1.4
Source: AJ Bell/Opinium. Survey of 1,000 Cash ISA savers conducted by Opinium for AJ Bell in February 2021 & 2022

Have you ever moved your Cash ISA to a different provider or bank to get a better interest rate?
Yes 32%
No 68%
Source: AJ Bell/Opinium. Survey of 1,000 Cash ISA savers conducted by Opinium for AJ Bell in February 2022

Why is that? (Please select all that apply.)
The rates are so low it hardly seems worth it 52%
I’m happy with my current rate 22 %
I’ve not found the time to do it 16%
I’ll be using the cash soon anyway 10%
I do not know how to 11%
Other reason 3%
Don’t know 6%
Source: AJ Bell/Opinium. Survey of 1,000 Cash ISA savers conducted by Opinium for AJ Bell in February 2022

*Survey of 1,000 Cash ISA savers conducted by Opinium for AJ Bell in February 2022
**Data from Moneyfacts, based on the highest rate easy-access cash ISA that accepts ISA transfers.
***Based on Bank of England data.

These articles are for information purposes only and are not a personal recommendation or advice. How you're taxed will depend on your circumstances, and tax rules can change. ISA rules apply. Remember that the value of investments can change, and you could lose money as well as make it.


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Written by:
Laura Suter

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.