Savers in the basic, higher and additional rate tax bands who invest the maximum £20,000 allowance into an ISA this tax year will need their provider to deliver a minimum rate of return of 1.84% p.a. to beat inflation. 

The situation is far worse for 20% tax payers with non-ISA investments of £20,000, who must achieve a rate of 2.30% just to keep pace with inflation, rising to 3.34% for a 45% additional rate tax payer. 

This is according to Assetz Capital’s new ISA calculator, an indicative tool that projects how much tax customers can save when investing through their ISA allowance, and whether projected returns from both ISA and non-ISA investments beat inflation at the current rate.*

The calculator shows that the minimum inflation-beating ISA rate of 1.84% for a £20,000 investment would equate to an effective annual interest rate of only 0.01% when inflation is factored in, delivering a projected annual growth of just £1.38 in real terms.

This means that, despite reaching a three-year high of 1.35% in January 2019 (based on an investment of £5,000),** the average one-year fixed ISA rate would still see savers lose money in real terms.

Stuart Law, CEO of Assetz Capital, said: “There is a lot to consider when choosing an ISA, but people are often unaware of the quiet threat of inflation to their investments. With more money in ISAs than ever before, and inflation overtaking rates of return, consumers have a right to know whether their cash is increasing, maintaining or even decreasing in value over time.

“With the base rate currently below 1% and speculation rife that it may fall again in the future, it’s unlikely that the banks will increase interest rates to a level that covers inflation any time soon. It would be of little surprise, then, if investors follow the trend of recent years by eschewing the meagre returns of conventional Cash ISA offerings in favour of the third way offered by the IFISA.”

“While it is an investment rather than a bank account and therefore capital is at risk, we’re already seeing record levels of subscriptions to our IFISA, and we expect to reach £100m invested through our IFISA shortly.”  

All Assetz Capital investment accounts can be wrapped with its Innovative Finance ISA (IFISA), enabling users to invest in a range of secured peer-to-peer business loans while benefiting from tax-free target returns starting at 4.1% p.a.

Over 3,600 investors have opened an IFISA with the peer-to-peer business lender to date. Earlier this month, the company reported that its investors had put an average of £18,000 into the IFISA last year, while investors have earned nearly £70m in total gross interest to date on investments through the platform.  

ISA hunters can take the inflation challenge and discover whether their ISA is beating the current rate of inflation at www.assetzcapital.co.uk/inflation

*Calculated according to the rate of inflation as of 1^st February – though this could change at any time 
**Source: Moneyfacts Treasury Report