Savers with Cash ISAs are being urged to review their accounts and consider switching to higher-paying deals that can keep pace with rising prices.
The warning follows the release of the latest inflation figures from the Office for National Statistics on Wednesday, which showed Consumer Price Index inflation rose to 3.4 per cent in December, up from 3.2 per cent in November.
With less than three months until the end of the tax year, savers still have time to make full use of their ISA allowance. Using any remaining Cash ISA allowance before the deadline could help maximise returns, particularly with the annual limit for under-65s set to fall from £20,000 to £12,000 from April 2027.
However, experts warn against delaying decisions in the hope of better deals later.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said a “wait-and-see” approach could prove costly, especially as savings rates have already started to ease in recent weeks.
The increase in inflation means the value of cash savings is being eroded more quickly, as prices are now rising faster than in recent months. Savers who do nothing risk seeing the real value of their money shrink, as interest rates on many accounts fail to keep up with inflation.
For example, when inflation is running at 3.4 per cent but a savings account pays just three per cent, the saver is effectively losing 0.4 per cent of their spending power. Even though the balance may rise slightly, that money will buy less over time.
This loss is often overlooked, particularly by savers who have left their cash sitting in the same account without checking whether better rates are available.
With inflation rising month by month, the gap between low-paying savings accounts and the cost of living is widening, making it increasingly important for savers to review where their money is held.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk said: “Across the big banks, they offer just 1.53 per cent on their easy access cash ISAs, which could leave savers around £450 worse off compared to if they stashed their full allowance into an average one-year fixed cash ISA.”
Across the big banks, they offer just 1.53 per cent on their easy access cash ISAs
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GBNEWS
“The difference becomes more dramatic if they were to switch to the current highest paying accounts,” she continued.
While some may consider holding off until the traditional ISA season when providers typically compete more aggressively for customers, Eastell cautioned against delay.
“However, the ‘wait-and-see’ approach could come at a big cost,” she warned, noting that top fixed-rate ISA deals have actually improved this week.
ISAs remain one of the most widely used savings products in the UK | GETTY
The solution for savers seeking to protect their money from inflation lies in fixed-rate products.
Currently, the average one-year fixed Cash ISA currently paying 4.02 per cent – comfortably above the 3.4 per cent inflation figure.
Ms Eastell emphasised the importance of reviewing rates in the coming months, stating: “It is crucial that savers review their rates over the coming months to ensure their tax-free allowances are fully utilised.”
With the tax year drawing to a close, there is added urgency for those wishing to maximise their current £20,000 Cash ISA allowance.
From April 2027, the annual limit will be reduced to £12,000 for savers under the age of 65.
This makes it even more important to take full advantage of the existing allowance while it remains available.