Savers are being urged to review where their money is stashed, as vast disparities emerging between the top and bottom-paying Cash ISA accounts are leaving people missing out on thousands of pounds in tax-free interest. That’s according to fresh analysis from Defaqto, which revealed that savings rates have remained well above 4% since the Bank of England held the Base Rate at 3.75%.
The alert comes as savers face a “use it or lose it” countdown on the current £20,000 Cash ISA allowance before rules are tightened from April 2027, when the limit will drop to £12,000 for under-65s. Experts warn that those who fail to capitalise on this year’s higher allowance could forfeit the chance to shield thousands more in savings from tax.
By placing the full £20,000 allowance into one of the top-paying five-year fixed Cash ISAs, savers could pocket nearly £1,900 more in interest than those opting for one of the lowest-paying deals, according to Defaqto’s latest analysis. The best-paying five-year fixed-rate Cash ISA is currently offered by Nationwide at a rate of 4.60%. The poorest-paying fixed rate over the same period stands at 3.00%, which would leave savers £1,861.03 worse off over five years.
Katie Brain, banking expert at Defaqto, said: “Cash ISAs remain an important way for savers to protect their interest from tax, particularly while savings rates remain relatively high. What’s striking at the moment is the size of the gap between the best and worst paying accounts, which means failing to shop around could cost savers thousands over the long term.
“We’re also seeing more flexibility in the market, with savers able to split their ISA allowance across different products to balance access and returns. But with the Cash ISA allowance due to reduce from April 2027, this year is particularly important for anyone looking to maximise the amount they can hold tax-free.”
Defaqto advised savers to weigh up how likely they are to require access to their funds before committing to longer-term deals, and encouraged consumers to compare rates thoroughly, as discrepancies between providers remain substantial.
Katie added: “Before committing, think carefully about your needs. Consider how likely you are to need access to your money, whether you might exceed your Personal Savings Allowance, and how long you can afford to lock funds away.”
- Consider diversifying your ISA. Utilise a combination of easy-access, fixed and tracker ISAs to strike a balance between flexibility and returns. Check your Personal Savings Allowance. If you’re likely to exceed it, a Cash ISA becomes even more valuable.
- Understand access restrictions. Fixed ISAs often limit withdrawals, while easy-access accounts may have lower rates.
The latest Defaqto data highlights competitive rates across all major Cash ISA categories:
- Fixed-rate Cash ISAs. Rates remain at a premium, with up to 4.60% AER available on longer-term fixes (Nationwide). Even shorter-term deals remain strong, including 4.54% AER for one-year fix (Charter Savings).
- Lifetime ISAs (LISAs). Cash LISAs continue to offer competitive returns alongside the government bonus, with rates up to 4.35% AER (Moneybox).
- Tracker Cash ISAs. A growing segment of the market, Tracker Cash ISAs now offer rates at 4% (Manchester and Newcastle Building Society) with products directly linked to the Bank of England Base Rate.
Defaqto maintains the UK’s most comprehensive financial product database, providing independent expertise, insights, tools and technology to help everyone make smarter financial decisions.