The latest tables for instant access cash ISAs from www.money.co.uk1 do little to improve the outlook. Top billing goes to the AA, offering 1.06% inclusive of a 0.86% fixed bonus for 12 months. In second place is Skipton Building Society offering 1.02% (including a 0.27% bonus), while Ford Money (1%) slots into third place. Of the major providers, Nationwide offers 0.5%, and NatWest brings up the rear with a paltry 0.01% rate of return. It appears that the majority of Cash ISA providers have not passed the 0.25% rate increase onto the consumer.
If you opened the highest returning cash ISA – even when it offers a greater return than the
Bank of England base rate – you would still guarantee to lock in a loss in real terms, after inflation has been taken into account.
Read more: How inflation is killing your cash savings
What are the alternative options?
The real question is whether you need large cash deposits at all?
Holding a few month’s cash is certainly important to stave off life’s unwelcome emergencies; job losses, replacing the boiler, fixing the car etc. But deliberately holding large sums of cash over the very long run – it would have been possible to have saved £121,000 in a cash ISA since their launch - is overly cautious and faces significant risk of erosion from inflation. Ultimately, a focus on avoiding short-term losses increases your chances of not having enough money to meet your long term goals.
There is also the opportunity cost to consider; what could you have invested in over the long run which could have made you larger returns?
By not investing in equities, a long term cash saver is effectively doubting mankind’s ability to continually adapt to its surroundings, to generate growth where it seemed doubtful before, and to share the proceeds of growth amongst its shareholders. Over rolling five year time periods it is rare to lose money in equities, but it is admittedly still risky to invest everything at once.
A slow drip feed into the market, known as pound cost averaging can help smooth your returns while also eliminating the chance of investing everything at the top of a market. Innovation in the past five years has made it easier (and cheaper) to invest small sums of money on a regular basis.
IG Smart Portfolios have been designed to invest your money securely over the long term, in a series of portfolios which take on different amounts of risk. And, unlike fixed term cash ISAs, there are no exit fees if you want to sell. If you invest today, and change your mind tomorrow, your investment will be returned to you.
1As of 6 November 2017