Average Cash ISAs drop £252 in value over five years

The average Cash ISA holder has seen the value of their pot fall by £252 over the last five years, new research from RateSetter has revealed.

The P2P lending platform suggested this equates to millions of people effectively losing £1 a week in spending power – with inflation outpacing interest rates to erode ISA pots.

In the 2014/15 tax year, RateSetter found that the average Cash ISA subscription was £5,924, with the real value of savers’ money rising modestly over the next 18 months – due to low or even negative inflation.

From summer 2016 onwards, however, the research showed a return to more normal levels of inflation and low interest rates for Cash ISAs had continuously hit the spending power of savers’ ISA pots. The value of an average Cash ISA pot now sits at £6,154, although RateSetter revealed the average value would be £6,406 had they increased in line with inflation.

RateSetter’s research also suggested that many people had responded by turning away from Cash ISAs in recent years – and the lending platform highlighted HMRC figures from 2015 to 2018, which showed the number of Cash ISA accounts fell by approximately 2.5 million, while the money held in Cash ISAs decreased by more than £20bn.

RateSetter CEO, Rhydian Lewis, commented: “Cash ISAs provide certainty on the returns they deliver – but in reality, this simply guarantees that inflation will nibble away at your money faster than it can grow.

“It’s really not surprising that the number of new Cash ISAs opened has dropped, while other options, such as the Innovative Finance ISA – where money invested is put to work in exchange for accepting some risk – are growing in popularity.”

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