Hargreaves Lansdown the UK’s largest D2C savings and investment platform has raised the interest rate available to new Cash ISA customers.

Hargreaves Lansdown cash ISA interest rates

Hargreaves Lansdown has raised the interest rates that new customers can expect to receive on cash ISAs at the firm. The rate has been hiked by 20 basis points or 0.20% to 0.50%, from the prior rate of 0.30%. Hargreaves Lansdown partners with the Coventry Building society in its cash ISA product.

To find out more about Hargreaves Lansdown read our Hargreaves Lansdown review or compare Investment ISA accounts.

What is a Cash ISA?

ISA’s or Individual savings accounts allow UK taxpayers to invest up to £20,000 per annum in a tax-free shelter, the annual allowance is set by the UK government and is subject to review. However, any income or capital gains generated within an ISA are free of tax.

The Hargreaves Lansdown/Coventry Building Society ISA pays interest on a monthly basis and can be opened with a deposit of as little as one pound.

Annual allowances run in conjunction with the tax year so we are fast approaching the cut-off point for contributions for the 2021/22 tax year.

See the difference between cash ISAs and stocks and shares ISAs here

Is this good news for savers?

The answer to that is yes and no.

In outright percentage terms, the increase in interest in the Hargreaves Lansdown Cash ISA is significant, in fact, it’s been boosted by more than +66% and brings the ISA in line with Bank of England base rates at the time of writing.

However, with UK inflation running at +5.50% currently, that actually means that even Cash ISA savers will earn a negative return on their money.

Or to put it another way, even allowing for a tax-free +0.50% on your ISA savings, the spending power of your cash will fall or be devalued by – 5.0% over the next 12 months, assuming that is that inflation stays constant.

That is the uncomfortable truth about the difference between nominal and real or inflation-adjusted returns.

Risk and Reward

Risk and reward are the opposite sides of the investing coin and many people who don’t feel comfortable with the risks associated with investing in funds, stocks and shares, or bonds may choose to keep their assets and savings in cash.

However, in a climate where inflation is running so far ahead of deposit rates, it would be wrong to think of cash as a riskless asset, because it most certainly isn’t.

Though as we identified above the risk to the value or spending power of your cash, is not an obvious one.

This is a difficult circle for risk-averse investors and savers to square and given the current macroeconomic climate, it could get worse before it gets better, even if the Bank of England hikes interest rates to try and curtail inflation.

Compare the best stocks and shares ISA accounts here

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