Interest rates: Britons urged to act as many lose out on cash returns – ‘pays to listen!’

Martin Lewis shares his prediction for interest rates

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Interest rates have undoubtedly been hard hit by the Bank of England’s base rate decision, with the rate remaining at 0.1 percent since March 2020. With a knock on effect for many familiar providers, it has been challenging for individuals who are determined to save. But the situation has not only been dire for easy access accounts, with ISAs also feeling the pinch. 

Research undertaken by Janus Henderson Investors showed that many Britons are missing out by keeping money in cash savings.

There have been record low rates recorded on cash ISAs as well as easy access accounts which mean many have been missing out.

The standard household with a cash ISA has £11,600 saved in total, the research found.

However, individuals have only received a small return of £47.85 in interest across the past year.

While one main incentive of saving into an ISA is the tax relief which can be gained, the research also proved this is a paltry sum at present.

The return in interest recorded is equivalent to a minuscule £9.57 in tax relief, which may cause people to rethink their approach to saving.

The research from Janus Henderson showed cash ISAs currently have near record balances.

At the end of 2020, some £297billion was held in cash ISAs, showing their continued popularity.

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However, the total interest paid on all cash ISAs across 2021 is set to be the lowest recorded in 20 years. 

James de Sausmarez, director and head of investment trusts at Janus Henderson Investors, commented on the matter.

He said: “Nobody will be popping the champagne to celebrate all the tax they’ve saved on their cash ISAs this year, not least because the tax relief wouldn’t even pay for half a bottle.

“Having slashed savings rates to record lows, banks and building societies are sending a very clear message that they simple do not want any more cash deposits.

“When someone sends a message this loudly, it pays to listen.”

But while Mr de Sausmarez offered this important warning about interest rates, he also said there was a lot to consider when it comes to investing.

A main sticking point for some will be the risk involved with investing, but this can be mediated.

He continued: “As with all investing your capital is at risk as the value can fall as well as rise, but for long-term investors investment trusts could provide a preferred alternative to cash.

“Not only do they pay income far in excess of anything that can be earned on cash deposits, but they also offer the prospect of capital gains too.

“All that income and all those capital gains are sheltered from tax if they are held within an ISA.”

The organisation noted if a typical cash ISA balance was instead switched to an investment held in an investment trust, Britons could expect to secure a return of £324.80 in dividends.

This is the equivalent of tax relief worth £64.96, and more than six times the return gained through a cash ISA.

The ISA savings deadline is fast approaching with Britons given until April 5 to use their allowance.

ISAs operate under a ‘use it or lose it’ principal, meaning allowances cannot be carried over into the next tax year. 

Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to personal.finance@reachplc.com. Unfortunately we cannot respond to every email.

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