Isa rates drop to record low

Some cash Isa interest rates have plummeted to their lowest level since records began.

Some cash Isa interest rates have now fallen to record lows, according to financial information website Moneyfacts.

Despite a new Isa limit of £15,000 being introduced in July, savers are struggling to find any sort of decent tax-free return.

The Moneyfacts research shows the market remains subdued, with some rates actually falling since the new limit was introduced.

Lacklustre response

An average rate of 1.17% on easy access cash Isas is the lowest Moneyfacts has recorded since its records began back in 2007.

Meanwhile the average notice Isa is at 1.30%, a marginal increase over August, but still one of the lowest rates seen in the last 12 months.

Fixed rate cash Isa rates have dropped since April, with the average one-year fixed Isa rate tumbling by 0.08% to 1.51% in the last five months.

The Isa shake-up has also failed to boost the number of cash Isa products on the market. There are currently 283 Isas available, the lowest number in 12 months.

What’s to blame?

Moneyfacts says the subdued market shows the Government’s efforts to revive rates has been a ‘flop’ and we are still "paying the price" for the Funding for Lending Scheme (FLS).

This was designed to help kick-start lending by giving banks and building socities access to cheap finance on the condition they would pass on the benefit to borrowers.

However, the access to cheap funds meant banks and building societies were less motivated to attract savers’ money to boost their reserves, leading to a fall in saving rates.

Despite FLS enduing in January 2014 rates still haven’t returned to anywhere near where they were before it was introduced.

The table below shows the average rates on easy access, notice and one-year fixed rate Isas before, during and after the scheme.

Source: Moneyfacts

The best cash Isas

If you are looking for the best tax-free home for your savings here are the top rates across the main types of cash Isas.

If you want easy access to your money and/or you don't pay tax on your income, it's worth looking at current accounts. TSB's Classic Plus and Nationwide's Flex Direct accounts both pay 5%, so long as you can manage them online and pay in a certain amount each month.