Rampant inflation is continuing to make savers suffer with their real returns on cash ISAs, despite interest rate increases.

According to analysis by wealth manager, Quilter, cash ISA savers are realising a more than 5% loss on their savings over the last 12 years due to the gap between current savings rates and inflation.

While this still represents a significant loss, Quilter did highlight that the picture has improved from last year when savers were suffering near double digit losses. The analysis showed that July 2022 has been the highest loss in over a decade when savers faced a decline of 9.42%.

When CPI inflation hit 11.1% in the year to October 2022, the monthly interest rates available on cash ISA deposits, including unconditional bonuses, stood at just 1.69%, meaning cash ISA savers suffered a real terms loss of 9.41%, and even in March this year, savers bore an 8.15% real terms loss.

While the average cash ISA rate is now 2.62% according to the Bank of England, there are much more competitive rates on the market with the current best easy access cash ISA coming in at 4.05% and a two-year fixed rate of 5.25%.

Quilter is warning cash savers to “mind the inflation gap” and has called for cash ISAs to have additional risk warnings in times of high inflation so that people fully understand how their capital will be eroded in real terms.

“With inflation remaining stubbornly high and the Bank of England raising interest rates to 5% savers should be seeing greater returns from their cash,” commented tax and financial planning expert from Quilter, Rachael Griffin. “However, many banks and building societies while quick to pass on mortgage rate increases are yet to up their rates on products such as cash ISAs.

“Although the picture has improved in certain corners of the market, even savers on the very best rates will be realising a real terms 3% loss. Although cash ISAs have been perceived for a long time as an easy way to save money with comparatively little risk, they still get ravaged by the impact of inflation.

“But now with inflation hitting 30-year highs and interest rates on cash savings still lacklustre, the time may have come for people to consider alternatives.”

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