Over £54 billion of adult cash ISA savings are languishing with interest rates at 2% or below, a situation highlighted by recent research from Paragon Bank. This analysis of CACI data reveals a concerning trend in which the vast majority of this cash, approximately £52.4 billion, is trapped in instant access accounts, while a mere £1.7 billion resides in fixed-rate ISAs earning the same low return.
The figures reveal that out of a total £250.6 billion held in non-ISA accounts earning 2% or less, £234.7 billion also sits in easy access accounts. As of March 18, 2025, this trend underscores an urgent problem for savers across the UK, where inflation currently stands at 3.0%. In comparison to the rising cost of living, these meager interest rates do little to protect the value of savings.
According to the data, the average balance in the 7.2 million instant access adult cash ISA accounts is approximately £7,252. An account holder with this average balance earning only 1.5% would see an annual return of just £108.78. In contrast, if they were to switch their funds to a higher-paying access account offering 4%, their interest income could more than double to £290.08.
Derek Sprawling, managing director of savings at Paragon Bank, emphasized the ease of switching to better accounts. He stated, "Over 96% of cash ISA balances earning 2% or below is held in instant access variants, meaning that people can easily switch that money into a better paying account. On average, these accounts contain over £7,000 and that money could be generating much better returns by switching.”
Despite this, many savers hesitate to change accounts. Sprawling encourages these individuals, saying, "Many savers overestimate the effort involved in switching a cash ISA. I’d encourage anyone receiving under 2% to consider their options.”
The broader implications of this situation illustrate a stark reality for UK savers. With rising inflation, which previously reached historic highs of 11.1% in October 2022, every day that money is left in low-interest ISAs means a loss of purchasing power. According to Moneyfacts, variable savings rates are now at their lowest since August 2023, with the average easy access ISA fetching just 3.02%.
In light of the current financial landscape, the best cash ISA is the Chip Cash ISA, providing a robust 5.03%. For those willing to lock their money away for a year, the Castle Trust Bank Fixed Rate e-Cash ISA offers a respectable 4.49%. Such options highlight the importance of actively managing one’s savings rather than allowing funds to stagnate.
Rachel Springall, a finance expert at Moneyfacts, noted that while easy access accounts are popular for their flexibility, the dropping interest rates may push savers to consider fixed-rate deals for guaranteed returns. She remarked, "It is imperative savers take action to consider all the various accounts available to them, maximise the interest they earn and utilise any tax-free allowances before the end of the 2024/25 tax year.”
This message resonates strongly with the 1.6 million accounts containing more than £10,000, as well as the more than 18,000 accounts holding between £85,000 and £100,000. With investments of this scale, the benefits of switching to accounts with higher yields are potentially significant.
As more savers strive to grow their finances responsibly, the mounting evidence points to a growing division between those who take informed, proactive steps and those who let their savings languish in low-yield accounts. The overarching narrative here is clear: in an era of shifting economic landscapes, complacency can indeed cost savers dearly.
Ultimately, being aware of better account options is critical for protecting financial assets. Savers are urged to reassess their financial strategies frequently, especially in the wake of increasing inflation and seemingly low interest rates that can erode wealth rather than build it. A financial landscape that fosters better returns is possible, but only if individuals take proactive steps today.
