Fixed rate ISAs outpace variable rates
Fixed rate ISAs outpace variable rate options over both the short term and the long term, new research has found.
According to a new analysis from Innovative Finance ISA (IFISA) provider easyMoney, the current average rate for a one-year fixed rate cash ISA is 5.34 per cent, while for a two-year it is 5.29 per cent.
Since 2018, the average monthly interest rate change for one or two year fixed rate ISAs has been 0.07 per cent.
Over the past year, one-year fixed ISA rates have increased by 3.21 per cent, while two-year rates have grown by 3.22 per cent. Over the past three years, one-year fixed rate ISAs have increased by 4.78 per cent, while the two-year ISAs have risen by 4.92 per cent.
This contrasts with variable-rate cash ISAs, which have grown by an average of just 0.04 per cent per month since August 2018.
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At present, the average return on a variable rate cash ISA is 2.89 per cent – up from 2.08 per cent over the past year. Over the past three years, variable rate ISAs have increased by 2.68 per cent.
Jason Ferrando, chief executive of easyMoney, pointed out that IFISAs also tend to pay out a fixed rate to investors, with target returns of between 5.5 and 7.5 per cent or higher.
“The economy has been so volatile of late that traditional financial institutions are facing an unusual amount of stress and strain, but one positive impact for savers has been a reasonably fast rise in interest rates created by soaring inflation,” said Ferrando.
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“But the strong growth shown in these numbers will inevitably start to slow as inflation eases and the economy finds its feet after a turbulent period, at which point cash ISAs investors will also see their returns reduce.
“However, today the ISA offering has evolved with a multitude of different products available to suit a variety of investment strategies.
“For example, the IFISA currently offers investors better returns when compared to that of the cash or variable products, with target rates of between 5.5 to 7.5 per cent and higher for professional investors.”
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