How Much Money Are You Losing In A Cash ISA?

The office for National Statistics reported this morning that the UK inflation rate was 2.9% in May, which is up from 2.7% the previous month.

This is the highest rate since June 2013, and it means that inflation continues to be above the Bank Of England’s 2% target.

Something to consider with this inflation rate, is the effect it has on the value of savings held in a Cash ISA, compared what could be the value of investments in a Stocks & Share ISA.

Let’s say your Cash ISA has an interest rate of 1.5%. When you consider the inflation rate of 2.9%, you can see that the spending power of your savings is being eroded. You put in £100, rather than buy an item for £100.  In one years’ time, you have £101.50 in your account.  You go to buy that £100 item, only to find it now costs £102.90.  The more you save in to that Cash ISA, the less spending power you have in.

You should carefully think through your options. With money in Cash ISAs losing value, a Stocks & Shares ISA could represent a better option as they could offer returns above the UK rate of inflation, therefore increasing your spending power.

(Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest.)