Billions sat in cash ISAs could be losing value but savers have no idea of interest rate

Falling values

Over 40 per cent of cash ISA holders report that they don’t know the interest rate paid on their account, new research from Quilter has found.

Asked if they were aware of the interest rate they received, 35 per cent of cash ISA holders said they didn’t know and a further 8 per cent said they had never checked. Just 57 per cent said they knew what the account paid.

According to the latest figures GBP270 billion sits in cash ISAs, with an estimated 6.7 million adults holding around GBP115 billion in ISAs where the rate of return is unknown.

Even more cash is likely to have been parked in ISAs in recent months as household savings have increased dramatically due to lower spending and people setting more money aside due to fears about the economy.

Despite the huge amount of money held in cash ISAs, rates of return are extremely low and have plummeted further still since the start of the pandemic. The average ISA interest rate is currently below the rate of inflation, meaning that billions could be held in cash ISAs that lose money in real terms, without the holder even knowing the rate of return.

Rosie Hooper, chartered financial planner at Quilter Private Client Advisers, says: “This is a cash crisis. We estimate that over GBP100 billion is held in cash ISAs where the holder doesn’t know the rate of return. Many people will be losing money in real terms, because their bank pays less than the rate of inflation.

“The problem is being exacerbated by the Covid-19 pandemic, with banks cutting their rates at a time when households are building up cash reserves. The situation has been made even worse recently with NS&I choosing to cut the rate of return on its products.

“Many people save in cash because the prospect of stocks and shares can seem overwhelming or they are don’t know how much they can actually afford to invest. A good rule of thumb is to save the equivalent of six months of your salary in cash and you can then invest in a spread of different assets that can deliver a long-term return.

“For some people financial advice is crucial so they can create a financial plan, factor in potential changes in circumstances and then allocate money accordingly.”