Over £53 billion infixed-rate cash ISA investments will reach maturity by April, prompting savers to ponder where to relocate their funds next.
Cashing in on Maturing ISAs: Your Game Plan for Good Rates
By the end of April, a grand sum of £53.9 billion in ISA cash savings will be due for maturity, leaving those desiring the best return on their cash investments in a pickle.
This FYI: Most of these maturing savings — a whopping £36.4 billion — are short-term, with a term of up to one year. An additional £15 billion is locked away in savings with a term of between 18 months and two years.
Tempted to shield your savings from the taxman? Last year was a banner year for cash ISAs, with savers pouring £36.3 billion into them, according to official figures, from April to November alone. Think it's a good idea to jump on the bandwagon? Think again.
CACI, the data-crunching consulting giant, points out that the growth of ISA balances outpaced non-ISA savings accounts in 2022. Some folk even hurried to open or top up a cash ISA in the autumn prior to Labour's first Budget, fearing the popular tax-efficient accounts would be targeted in chancellor Rachel Reeves's tax raid. In the end, nothing of the sort happened, and savers can still tuck away £20,000 in cash ISAs, stocks and shares ISAs, or a combination of the two, each tax year.
So, what should you do if your cash ISA is about to run its course? Let's dive into the options:
Know What You Want from Your Savings
If you anticipate needing to access your cash within a few months of your ISA maturity, park the money in an easy-access savings account, preferably another cash ISA, a traditional savings account, or even a high-interest current account.
On the other hand, if you're comfortable putting your cash in cold storage for a longer stretch in return for better returns, gaze anew at a fixed-rate account. Your choice of fix-it timeframe depends on your readiness to lock up your money and your predictions about interest rates.
As of now, the top one-year cash ISA is offering 4.53%, while the top five-year cash ISA is showing 4.20%. Last January, the highest one-year cash ISA was at 5.01%, and the top five-year cash ISA was at 4.30%. Anna Bowes, a savings expert at The Private Office, a financial planning firm, advises that the gap between the short-term and long-term top cash ISAs has shrunk from 0.71% to just 0.33%.
Consider the Taxman
Cash ISAs are famed for their tax-free status, unlike the interest accrued in non-ISA savings accounts. However, if you're sure you won't be shouldering any tax, choosing another cash ISA may not be the best choice. Instead, cast your sights across the entire savings landscape for the best interest rate.
At the moment, the best one-year fixed-rate savings account is at a whopping 4.77% from Vida Savings, outstripping the best one-year cash ISA, which is at 4.53% from Castle Trust Bank. This tax-free cash ISA still has a leg up, though. Deduct basic-rate tax from the bond's 4.77% interest, and the net rate drops to 3.82%. In contrast, the top one-year cash ISA continues to deliver £906 pre-tax to you, overtaking the £764 net return from the bond.
Act Swiftly to Snag the Best Rates
Remember the annual ISA allowance — £20,000. This sum encompasses all your ISAs, including lifetime ISAs and stocks and shares ISAs, and runs from 6 April to 5 April. As the saying goes, use it or lose it. If your cash ISA matures before 5 April, you may want to act posthaste and open a new ISA to stash any remaining ISA allowance before the new tax year begins.
Derek Sprawling, savings managing director at Paragon Bank, offers this piece of esoteric wisdom: "To better manage high volumes, savings providers can withdraw popular products from the market or make certain products available only to existing customers. If savers are contemplating opening a new ISA this tax year or transferring an existing ISA balance to a new account, don't tarry!"
Take Inflation into Account
Lastly, bear in mind inflation. In January 2024, the top one-year cash ISA was paying 5.01%, but inflation stood at 4%. Over the preceding 12 months, inflation had averaged 2.66%. On a stash of £20,000, the real value, taking inflation into account, would have been £20,458 after a year. However, with the top one-year cash ISA now returning 4.53%, the real return, even with inflation, would be £20,496 — a decent improvement!
In conclusion, the current interest rates make a compelling case for investors with maturing cash ISAs in 2023 to explore their options. Remain flexible and nimble, and capitalize on the best rates available, tax-free and inflation-adjusted, as the sun shines on ISA returns!
- Given the current interest rates, individuals with maturing cash ISAs this year could consider shifting their savings to a fixed-rate account for better returns, as the top one-year cash ISA is offering 4.53%, while the top five-year cash ISA is showing 4.20%.
- While the tax-free status of cash ISAs is an advantage, if one is certain they won't be shouldering any tax, they might want to explore the entire savings landscape for the best interest rate, as the current top one-year fixed-rate savings account offers 4.77%.
