Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:

“Savers may be delighted to see that Cash ISAs have improved over the past year and providers have started reviewing their ranges for a new ISA season. Those savers who locked into the top one-year fixed ISA this time last year will be pleased to see they can earn 1.00% more in the equivalent Cash ISA. If consumers prefer to invest over the longer-term, they will find the top five-year fixed ISA pays significantly more than the equivalent back in 2019. Over the years, Cash ISAs have been an essential way for consumers to protect their savings returns from tax, and they are still worth taking advantage of today.

“As interest rates rose sharply last year, those savers who decided to invest their cash outside of an ISA wrapper may breach their Personal Savings Allowance (PSA). Cash ISAs could be a better option, particularly for higher rate taxpayers with a large nest egg. As we have seen over time, the top Cash ISAs across both the variable and fixed markets tend to pay slightly less than their taxable counterparts, but it is worth noting not every provider offers a Cash ISA and there are administration costs for those which do offer an ISA. The longer-term tax-free wrapper is the benefit of a Cash ISA, protecting returns regardless of interest rate rises. Despite its introduction in April 2016, the PSA limits have not been increased and interest rates are much higher.

“Savers comparing rates today and wishing to move their existing ISA pot must ensure they transfer the cash to keep its tax-free wrapper, but note that not every Cash ISA will permit transfers in from Cash ISAs or Stocks and Shares ISAs. Those who want to spread their cash across variable and fixed rates could do so with a provider that offers this option, and the ISA reforms coming into place in the 2024/2025 tax year could entice more consumers to use ISAs. It’s an exciting year ahead for Cash ISAs and it will be interesting to see if providers attract deposits.”