Fixed-rate cash ISAs outperforming variable-rate options 

Research by easyMoney reveals that fixed-rate cash ISAs deliver better and more reliable returns than variable-rate options in both the short and long-term.

easyMoney has analysed the monthly interest rate of UK monetary financial institutions (excl. Central Bank) cash ISA deposits between August 2018 and August 2023 to see whether variable or fixed-rate ISAs have seen rates increase the most over time, from a monthly to three-year basis.

Variable-rate cash ISA

The analysis reveals that the average interest rate for a variable cash ISA has increased by an average of 0.04% per month since August 2018, both with and without the inclusion of unconditional bonuses.

As such, average interest rates now sit at 2.89% for variable cash ISAs including unconditional bonuses, having increased by 2.08% in the past year. The average annual change for ISAs excluding unconditional bonuses is 2.07% and now sits at 2.88%.

Over the past three years, the change for both has been 2.68%.

Fixed-rate cash ISA

The average monthly interest rate change, since August 2018, for a one-year fixed-rate cash ISA is 0.07%. The same is true for a two-year fixed-rate option.

The current average rate for a one-year is 5.34%, while for a two-year it’s 5.29%.

The past year has seen one-year fixed-rate ISA interest rates increase by 3.21%, while two-year rates have grown by 3.22%.

Over the past three years, the interest rate of a one-year has increased by 4.78% while the two-year option has performed slightly better at 4.92%.

Jason Ferrando, CEO of easyMoney said, “The economy has been so volatile of late that traditional financial institutions are facing an unusual amount of stress and strain, but one positive impact for savers has been a reasonably fast rise in interest rates created by soaring inflation.

But the strong growth shown in these numbers will inevitably start to slow as inflation eases and the economy finds its feet after a turbulent period, at which point cash ISAs investors will also see their returns reduce.

However, today the ISA offering has evolved with a multitude of different products available to suit a variety of investment strategies. For example, the Innovative Finance ISA currently offers investors better returns when compared to that of the cash or variable products, with target rates of between five and a half to seven and a half percent and higher for professional investors.”