A quarter of cash Isas pay less than 0.5pc interest

More than a quarter of cash Isas pay less than 0.5pc interest, as high street banks have ignored the pleas of customers and policymakers to pass on higher interest rates.

Despite six successive Bank of England rises taking the Bank Rate to 1.75pc and mortgage rates having increased repeatedly, savers are yet to feel the benefit of higher returns.

Financial analyst Moneyfacts found 26pc of easy-access cash Isas paid a rate lower than 0.5pc. The proportion was even higher among standard easy-access savings accounts, where 35pc paid below this level.

Among the providers offering below-Bank Rate returns were high street banks such as Halifax, Lloyds, NatWest and Santander. Santander paid 0.1pc to its cash Isa savers, over a year this would return just £10 to a customer with £10,000 deposited. Elsewhere, Lloyds and NatWest paid 0.2pc, and Halifax paid its savers 0.25pc.

By contrast, Marcus by Goldman Sachs pays 1.5pc, 15 times the rate offered by Santander. A Marcus account would earn £150, or £12.50 a month.

Last week Andrew Bailey, Governor of the Bank of England, said he was monitoring whether banks were failing to pass on higher rates to hard-pressed customers.

Rachel Springall, of Moneyfacts, said: “The biggest high street banks are falling way behind and savers would be wise to reconsider their loyalty for a better deal.

“It’s vital that savers do not become apathetic and instead be proactive to chase down a better deal, especially as there are easy access accounts out there paying as little as 0.01pc.”

The best paying variable cash Isas were from Marcus by Goldman Sachs, Saga and Newcastle Building Society, which all paid a rate of 1.5pc, according to Moneyfacts.

Savers can find better deals in fixed-rate bonds. The highest on the market was from Shawbrook, which paid 3.4pc on its five-year bond. However, no account or bond came close to matching inflation, which hit 9.4pc in June and is expected to reach 13pc by the end of the year.

Rising costs are hitting middle class families’ ability to save, a separate report has found. Currently 56pc of middle income earners have enough savings to cover three months of essential expenditure, but this is expected to fall to 48pc within a year, according to a report by the investment broker Hargreaves Lansdown. This represents the biggest forecast drop across all income groups.

Sarah Coles, of the broker, said: “Average earners are set to face a savings crisis, as rising prices force them to spend their way through their lockdown savings, so they end this period with a horrible dent in their financial resilience.”

Lower earners remain the most vulnerable – only 30pc of the lowest fifth of earners had a sufficient emergency savings fund. This is expected to drop to 24pc within the next year.