ISA savers have been urged to check if they could get a better rate as many people are losing out in real terms. With inflation at 3.8% in the latest figures, if your ISA or savings account is not paying interest in line with this figure, the value of your savings is dropping in real terms.
The team of specialists at investment app Kaldi have urged savers to look at one alternative account offering much better returns.
Mark Burges Watson, co-founder of Kaldi, said: “With inflation running at 3.8%, many instant access Cash ISAs are already failing to keep pace. That means millions of savers are already effectively losing money in real terms.
« Now is therefore the perfect opportunity to consider investing, and for those worried about risk and still looking for a fund that offer instant access, there’s one option that’s still flying under the radar: money market funds. »
These funds are short-term investments, such as Government bonds, which are considered to be low risk.
You can invest in them as part of a stocks and shares ISA, meaning you get the tax-free benefits of ISAs for the growth of your investment. One of the most popular money market funds available through Kaldi is the Royal London Short Term Money Market Fund.
This is currently paying 4.26%, although there is a standard fee of 0.1%, so the real-terms rate is 4.16%. This is much better than the rate you can get with some instant access cash ISAs with the big-name banks. For example, Barclays pays just 1.11% while Lloyds Bank pays even less at 1.05%.
Kaldi crunched the numbers to show how an initial £1,000 deposit would grow over five years, comparing some instant ISAs with the Royal London money market fund.
With inflation at 3.8%, the cash would need to grow to £1,205 over the five years to keep up with this.
- Lloyds Bank – 1.05% – £1,054 after five years (-£151 versus inflation)
- Barclays – 1.11% – £1,056 after five years (-£149 versus inflation)
- Santander – 1.2% – £1,061 after five years (-£149 versus inflation)
- NatWest – 1.15% – £1,059 after five years (-£133 versus inflation)
- Royal London Short Term Money Market Fund – 4.16% – £1,226 after five years (+£21 versus inflation).
