SAVERS have been urged to track ISA rates beyond April for top returns as experts warn “the biggest trap is the loyalty penalty”.
The upcoming ISA season could be one of the most competitive yet, but market shifts could see attractive deals linger, new analysis from Moneyfacts reveals.
Over the past two years, savers have seen the best returns on the top easy access cash ISAs during March to May compared to the rest of the year, with many of the best rates appearing towards the latter end.
Savers should be aware of a loyalty penalty – providers will compete heavily for new deposits. The average closed easy access ISA pays just 2.51% Annual Equivalent Rate (AER), whereas the top live rate is 4.66% AER, which equates to a £430 loss on a full £20,000 deposit over a year.
Conflict in the Middle East has drastically changed the outlook for interest rates. Providers may be reacting to shifting expectations which could see rates stay higher for longer.
The biggest trap is the loyalty penalty
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said: “With the new tax-year fast approaching, many savers may feel the pressure to choose an ISA before the deadline. However, while competition between providers is typically most intense in the run-up to April, the ISA season window stretches from March to May. Rates can continue to improve throughout this period as providers will be competing fiercely for savers’ allowances.
“On average over the past two years, savers have been able to maximise their deposits during the ISA rush compared to the rest of the year. While rates have dropped significantly since the previous tax-year, the early stage of ISA season is already pushing rates up, with the top easy access cash ISA rate now sitting at 4.62% gross compared to 4.31% at the start of the year. Savers who have been waiting on the sidelines may decide to act now, especially those that still have some remaining cash ISA allowance from the 2025/26 tax-year.
“However, some of the strongest deals have emerged during the latter end of this period. This means that savers who remain flexible and continue to monitor the market beyond the April deadline may be rewarded with higher returns.
“The ongoing conflict in the Middle East has drastically changed the outlook for interest rates. Originally, providers were primed for a base rate cut but now they are having to react quickly to shifting expectations. But these shifts could be positive news for savers as providers may keep rates higher for longer, allowing them to maximise their returns.”
It’s vital people proactively scan the market
Joe Farmer, Independent Financial Adviser at The Retirement Studio, said the war in Iran has changed the interest rate picture overnight.
He added: “Loyalty is an admirable quality but one that should be ditched altogether when it comes to your savings. It’s vital people proactively scan the market as doing so can make a real difference in terms of the interest generated from their cash.
“Events in the Middle East have changed the interest rate picture almost overnight. At the end of February, markets were pricing in a rate cut at tomorrow’s meeting and, due to the threat of inflation caused by the soaring oil price, there is talk of rate rises.
“While that would technically be a boost for savers, the focus has to always be on real returns as higher interest rates can amount to nothing if inflation is even higher.”
Ross Lacey, Director & Independent Financial Adviser at Rayleigh-based Fairview Financial Management, urged savers to think before they choose an ISA.
He added: “Our advice to savers is to really think about what you’re saving for. The money will be spent at some point, either by you or someone else. Cash is important in any financial plan, but where the money is unlikely to be needed in the next few years, or you have other cash that could be used instead, it’s worth considering putting that money to work in a more savvy way.
“The returns on cash deposits will rarely keep pace with inflation over the longer term, so locking away cash is almost a guaranteed way to lose your buying power over time. As with anything, individual circumstances will dictate the best way to structure things, and professional advice is key to making things work as best as possible.”
Too many savers leave money sitting in dead accounts
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, advised savers to shop around.
She added: “If conflict in the Middle East keeps rate cut expectations unsettled, savers may get a bit longer with stronger rates, but that is not a reason to switch off.
“Higher energy prices and geopolitical stress tend to keep inflation, bond yields and interest rates elevated for longer. However, the idea that a better headline ISA rate automatically means savers are truly winning is not strictly correct. Higher interest rates do not necessarily protect purchasing power if sterling itself continues to weaken in real terms.
“So yes, savers should avoid the loyalty penalty, review old ISAs and shop around, but also be clear about the purpose of the money: cash ISAs suit liquidity and short-term security, not necessarily long-term wealth preservation. For longer-term money, the key question is whether the capital is truly keeping ahead of inflation.”
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said too many are caught in a trap of loyalty.
She added: “I do agree with the broad direction of it. ISA season does create competition, and savers absolutely should not assume the first decent-looking deal is automatically the best they will see. But I would also say this is not a game where people should get greedy or lazy. The biggest trap is the loyalty penalty.
“Too many savers leave money sitting in dead accounts while providers roll out the red carpet for new cash. Right now the top easy access ISA rates are materially above the average closed-account rate, which tells you exactly how badly inertia gets punished.
“If conflict in the Middle East keeps rate-cut expectations unsettled, savers may get a bit longer with stronger rates, but that is not a reason to switch off. My advice is simple: use the allowance, keep watching the market, and do not confuse ‘easy access’ with ‘leave it there and forget it.’ That is how ordinary people lose out while the institutions stay comfortable.”
Photo by Nick Fewings on Unsplash.
