- £3.6 billion was put into Cash ISAs in June according to Bank of England data released today
- The average Cash ISA now pays 3.4%, below the rate of inflation
- £1.2 billion was placed in sight deposits (easy access accounts) in June
- The average sight deposit now pays just 1.9% interest
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“Flows into Cash ISAs remained strong in June, continuing the trend which has been in place for the last couple of years. Rumours of a Cash ISA raid to be announced by the Chancellor at her Mansion House speech didn’t translate into a spike in contributions though, which suggests the industry chatter didn’t cut through to savers. Or perhaps speculation around tax rises and allowance cuts is simply failing to make an impact any more seeing as it’s so ubiquitous and relentless.
“The interest rate on the average Cash ISAs now sits at 3.4%, down from a peak of 3.7% in September of last year. What may start to concern savers is that this is now below the current inflation rate, which sits at 3.6%. If the Bank of England delivers an interest rate cut as expected next week, that will almost certainly lead to another fall in Cash ISA rates too. The government is keen to get people to stop hoarding cash and investing in the stock market as well. Perhaps some messaging on the risk inflation poses to cash savings could be of some help here, to counterbalance the very obvious risks of the stock market.
“Easy access accounts also returned to positive territory in June, after a couple of months of outflows, with £1.2 billion finding its way into these accounts, even though they only pay 1.9% interest on average. No doubt much of this money is transactional, but with £900 billion tucked up in these accounts, it’s likely there’s a fair wedge of change in there which could be working harder, either in a more competitive savings account or invested for the long term in the stock market.
“The Bank of England data also showed that net mortgage approvals ticked up very slightly in June, increasing by 900 to 64,200. These figures are a leading indicator of house prices, and the rather limp increase in approvals in June suggests a market which is in the doldrums. That’s also been reflected in share prices in the housebuilding sector this year. Looking to the long term the imbalance between supply and demand still looks positive for house prices, and the Chancellor has announced a loosening of lending rules and a new mortgage guarantee scheme which should provide some impetus.”
