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1 in 3 Brits in the dark on Cash ISA rate

  • Savers out of touch with interest rates risk losing billions of pounds to inflation
  • A middle investment option that balances risk and return – such as the IFISA – could help savers beat inflation
  • The IFISA sits between low yielding Cash ISAs and highly volatile Stocks and Shares

Our latest research has revealed that millions of people across the UK don’t know the rate of interest on their Cash ISA* meaning that billions of pounds are potentially languishing in accounts earning little or no interest – or even losing money when accounting for inflation.

The research revealed that 1 in 3 British savers (30%) had no idea what interest they’re earning on their Cash ISA.  And there is a vast difference of knowledge by age with an alarming 42% of people aged between 25 to 44 being in the dark over the rate of interest they were earning on their Cash ISA, in contrast to 21% of over 55s. Generation Z’s were only slightly more aware than Millennials with 39% not knowing their rate of interest.

Zopa says that Cash ISA holders who lose track of how much interest their savings are generating for them, or don’t switch when they do realise, are at risk of seeing their hard-earned money significantly eroded by inflation. Savers with an average of £5,000 in a typical Cash ISA account** would have seen interest payments of only £57 in the last year. Accounting for inflation***, the value of these savings would have declined by £99, meaning savers would be £42 out of pocket.

In contrast, a person putting £5,000 into an Innovative Finance ISA (IFISA) – in this instance Zopa’s Plus IFISA at 5.2%**** – would have earned £260 in interest, equating to £157 in earnings in real terms over the last year. As with all peer-to-peer lending, capital is at risk.

The research also found that a startling 46% of Brits have never switched their savings accounts to a new provider.

Natasha Wear, Zopa’s investment product expert, commented: “If savers are in the dark about their interest rate, it’s highly likely they’re not making the most of their money. People need to get their money moving and working harder, and for many that could mean switching out their lower yielding Cash ISA for a higher returning IFISA, albeit with slightly more risk.

“Investing in loans through a robust peer-to-peer platform can be a great middle ground, especially when the returns are tax free as with the IFISA.”

The Zopa IFISA offers a target return of 4.5% in ISA Core, and 5.2% in ISA Plus.**** The product delivers a healthy balance for customers who want to see a good return without investing in a highly volatile product.

The Zopa IFISA allows you to transfer your existing ISA or previous years’ ISAs into an IFISA for free. Transferring in an old ISA from another provider also won’t affect your current year’s tax-free allowance.

Zopa has been an award-winning peer-to-peer lender since 2005. Since gaining its bank licence with restrictions in December 2018, Zopa will now bring a wider suite of financial products with the aim of making people feel good about their money by providing simple, fair products that are easy to manage.

When you invest your money with Zopa, your capital is at risk. Tax treatment depends on the individual circumstances and may be subject to change in the future.

*Cash ISAs are FSCS protected

**Cash ISA interest rate of 1.14% in January 2019. Moneyfacts data on Which? – combined average rate of interest for instant access Cash ISA (0.94%) and Fixed 1-year Cash ISA (1.35%)

*** Inflation savings calculator. Inflation set at 2% for 1 year.

**** Zopa ISA Core and Zopa ISA Plus returns are after expected defaults, but are not FSCS protected. As with all peer-to-peer lending, capital is at risk

All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2000 adults. Fieldwork was undertaken between 15th – 16th January 2019.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).