Rachel Springall, Finance Expert at Moneyfacts, said:

“Savers may feel a sense of optimism for a buoyant ISA season due to a record-breaking choice of Cash ISAs. As the end of the 2024/25 tax-year edges closer, now is the time for savers to ensure they are taking full advantage of their ISA allowances, and providers have been working hard to inject some healthy competition to entice deposits. It is also encouraging to see rates rise between the start of 2025 and the start of February across the savings spectrum, bar notice accounts which remained unchanged, but any swift celebration will be dampened by anticipated savings rate cuts, amid a drop to the Bank of England base rate and tumbling swap rates.

“Those savers comparing Cash ISA rates should keep in mind that not every savings provider offers a product within a tax-free wrapper as part of its range, so they will find fixed rate bonds paying higher rates on average. However, due to an income tax threshold freeze until 2028, those who end up as a higher rate taxpayer will be subsequently halving their Personal Savings Allowance (PSA), so any interest earned beyond the allowance on a fixed bond will be taxed. Cash ISAs are therefore a salvation for savers and will be sought-after both for this tax-year and for the future.

“The arrival of more savings providers entering the market can encourage savers to seek new brands away from the more familiar high street banks, as new challengers are more eager to attract deposits to fund their future lending. However, the months ahead will be challenging for providers to keep ahead of their peers to entice new business, but also to adjust their rates as interest rates are expected to fall. Whichever account savers choose, it’s imperative they review their pots as, worryingly, £300bn is sitting in UK current or savings accounts earning no interest whatsoever, according to the Bank of England. Savers must ensure they choose a deal which pays a competitive rate of interest but also provides a real return against the eroding impact of inflation, which is expected to rise this year.”