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Peer2Peer Finance News | September 18, 2019

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Zopa warns savers on hidden cash ISA losses

Zopa warns savers on hidden cash ISA losses
Kathryn Gaw

ZOPA has warned that millions of savers could risk losing money in cash ISA accounts that are paying out less than the rate of inflation.

New research from the peer-to-peer lender has found that 30 per cent of British savers have no idea what interest they are earning on their cash ISAs.

Young savers were most likely to be in the dark on their interest rates, with 42 per cent of 25- to 44-year olds claiming that they did not know what rate they were getting, compared with 39 per cent of 45- to 54-year olds, and 21 per cent of over-55s.

Read more: Zopa heralds IFISA as “the perfect middle ground” for investors

According to the latest Moneyfacts data, the average cash ISA return was just 1.14 per cent in January, while inflation was 1.9 per cent during the same month.

Zopa has calculated that, based upon the Bank of England’s target rate of two per cent inflation, the average cash ISA investor would have actually lost money over the course of the past year. Savers who kept £5,000 in their cash ISA account would have received interest payments of only £57 in the last year. However, when inflation is taken into account, the value of these savings would have declined by £99, meaning that savers would be £42 out of pocket.

By contrast, £5,000 invested in Zopa’s Plus Innovative Finance ISA (IFISA) would have earned £260 in interest over the past year, which equates to £157 in earnings in real terms.

Read more: Zopa passes £4bn lending milestone

“If savers are in the dark about their interest rate, it’s highly likely they’re not making the most of their money,” said Natasha Wear, Zopa’s investment product expert.

“People need to get their money moving and working harder, and for many that could mean switching out their lower yielding cash ISA for a higher returning IFISA, albeit with slightly more risk.

“Investing in loans through a robust P2P platform can be a great middle ground, especially when the returns are tax free as with the IFISA.”

Zopa’s research also found that almost half (46 per cent) of Brits have never switched their savings account to a new provider.

Zopa offers two IFISA products at present: the ISA Core, which targets returns of 4.5 per cent and the ISA Plus, which targets 5.2 per cent.

Read more: Zopa names new P2P chief and chairman