Cash ISA savers will earn just £47.85 of interest in 2021, generating tax relief of £9.57, new research from Janus Henderson Investment Trusts has revealed.

The analysis showed that cash ISA balances peaked at £302bn in May 2020 before ending last year at £297bn.

However, the total amount of interest that banks and buildings societies will pay to cash ISA savers this year is just £1.22bn, the lowest level since 2000, which was the first full year in which ISAs operated. Janus Henderson highlighted that the 20-year record low comes even though balances are now 14 times greater than they were by the end of 2000.

Variable rate cash ISAs are now only earning 0.35% including any bonus, according to recent Bank of England data, while those with rates fixed for a year will earn 0.49% – the lowest rates since ISAs were first introduced in April 1999.

The research suggested that currently, a typical household with a cash ISA has £11,600 stashed away, and Janus Henderson calculated that this will earn just £47.85 in interest in 2021 – saving a basic-rate UK taxpayer just £9.57 in tax, roughly half the 2020 level.

“Nobody will be popping the champagne to celebrate all the tax they’ve saved on their cash ISAs this year, not least because the tax relief wouldn’t even pay for half a bottle,” commented Janus Henderson director and head of investment trusts, James de Sausmarez.

“Having slashed savings rates to record lows, banks and building societies are sending a very clear message that they simply do not want any more cash deposits.

“As with all investing, your capital is at risk as the value can fall as well as rise but for long-term investors, investment trusts could provide a preferred alternative to cash. Not only do they pay income far in excess of anything that can be earned on cash deposits, but they also offer the prospect of capital gains too.

“All that income and all those capital gains are sheltered from tax if they are held within an ISA. If you had invested £1000 in the average investment trust in December 1999 and reinvested your dividends, you would now have a holding worth £5,755, without ever adding another penny. If you’d saved the same £1000 in cash, you would only have £1,705 today.”

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