The Bank of England’s predicted rise in inflation means that cash savers are set to lose out on thousands of pounds, while Innovative Finance ISAs (IFISAs) continue to allow investors to achieve inflation-beating returns.
According to the Bank’s latest survey on inflation expectations, inflation will reach 2.7 per cent over the next year and 2.2 per cent in the following 12 months.
Per the Bank, on 31 July the rate of inflation was 3.2 per cent while the average interest rate on a cash ISA is just 0.31 per cent. At these rates, if a saver allocated £20,000 in a cash ISA today, over the next five years it would lose 17 per cent of its value in real terms.
Meanwhile, research from Peer2Peer Finance News in April revealed that IFISAs have maintained average returns above eight per cent per annum for the past four years.
For the 2020/21 tax year, the average target return being offered across 32 IFISA accounts was 8.72 per cent.
Read more: Innovation in the IFISA transfer window
Among those accounts which shared target returns with their investors, eight were aiming for double-digit returns, up to a maximum value of 16 per cent per year, while the lowest forecasted target return was three per cent.
The average 8.72 per cent return predicted for the 2020/2021 year represented a slight drop from an average actual return of 9.4 per cent from 18 IFISA accounts during the previous tax year.
In 2019, 8.45 per cent was the average actual return across 17 IFISA accounts, while in 2018, 8.3 per cent was the average actual return across 16 IFISA accounts.