Beware More Cash ISAs Now Giving Negative Real Returns

Given inflation is now back up 3.0% pa and the average cash ISA interest rate is around 1.8% pa tax free, many cash ISA savers will be suffering real negative returns.  This means that your money is worth less each month as inflation is devaluing it.

For most of 2023 and 2024, Bank of England base rates were held at 5.25% for many months and then down to 5.0% pa in August 2024 but inflation was falling meaning real growth on our cash holdings.  UK CPI even went down to 1.7% in September 2024 and with cash ISA rates at around 3.5%-4% pa,, your cash savings were increasing spending power.  This has now reversed; inflation is now higher than cash ISA rates meaning lower spending power if you hold cash.

Comment

2025 could be a tough year.  As seen above, cash savings may now be losing money in real terms.  Stock markets have done well but are now under increasing pressure of a ‘correction’ (-10%) or ‘crash’ (-20%) with Ukraine/Russia peace talks may or may not take place, Gaza may ignite again after incorrect bodies have been returned to Israel and of course, President Trump and US tariffs.  It is difficult to call the market, and we are mindful of a likely recession, certainly if we are in a normal economic cycle, we are heading for recession.

Add to this, it is rumoured that Chancellor, Rachel Reeves will cut cash ISA allowances in the Spring Statement (mini-Budget), to stimulate Stock ISA investment and boost investment in the UK economy.

Is it time now to look to Bonds/Gilts and precious metals?  Is it any surprise that Gold reached an all time high of 2954.92 this month?