2 days Ago By Dmytro Spilka
It’s been a great time to reap the rewards of higher interest rates for Cash ISA savers in recent years, with the Bank of England hiking its base rate in 2022 and 2023. While interest rates have fallen since 2024, savers may be set for fresh opportunities to boost their fixed and variable rate earnings as US President Donald Trump imposes sweeping tariffs on trade. In March, a survey showed that 69% of UK mortgage brokers expected interest rates to rise beyond their current 4.
5% level by the start of 2026, while more than 28% suggested that a rate of 5.25% would be likely by the beginning of next year. Since then, President Trump’s ‘Liberation Day’ announcement of trading tariffs on around 90 countries sparked a trade war with China before causing more confusion by placing a 90-day pause on the implementation of the levies.
The Implication of Tariffs on Interest and ISAs So, what do Trump’s tariffs mean for Cash ISAs? It appears that there are plenty of implications that trade tariffs in the US have for the Bank of England’s base rate and Cash ISA AER rates as a whole. According to the House of Commons Library, one key criticism of tariffs is that the higher costs associated with impacted nations can be passed on to consumers and firms buying goods from abroad, pushing inflation higher. Tariffs can also lower the competition that businesses face from imports, meaning there’s less incentive when it comes to productivity.
At the time of writing, the growing trade war between the United States and China has seen the US impose a 145% tariff against China’s 125% border taxes on many goods being imported between the historical trading partners. These extraordinarily high costs will impact businesses scrambling to find new supply chains to limit the damage of higher prices. With many businesses facing higher import costs no matter the alternative supply chain they find, consumers are likely to pay the price.
With interest rates closely linked to inflation and central banks favouring base rate hikes as a means of controlling higher inflation rates, we may see interest rates rise if the cost of living once again begins to increase faster. This will invariably lead to Cash ISA rates returning to their peak levels from 2023 and 2024, providing savers with a more effective way to grow their wealth in the future. Given that Wall Street experts are finding it increasingly difficult to predict the future performance of the S&P 500 amid tariff uncertainty in the US, the appeal of Cash ISAs is rising as a more reliable and popular alternative to stock market investing, but what does the future look like for Cash ISA rates? Experts Anticipate Lower Interest Rates With the Office for Budget Responsibility lowering UK GDP growth forecasts to 1% from 2% in October 2024, expectations are growing for interest rates to continue shrinking in 2025.
According to the BBC, expectations in the wake of Trump’s tariffs have been for interest rates to continue lowering as a means of boosting borrowing at a time of economic uncertainty for the United Kingdom. While most economists have been expecting a cut in May, many now believe that a total of four interest rate cuts will take place in 2025, pushing the base rate down to 3.5% or below by the beginning of 2026.
Likewise, Investec’s 2025 outlook has maintained a forecast of interest rate cuts for the year ahead, this time to 3.75%. While these expectations will heavily depend on the inflationary impact of tariffs and possible growing trade wars between affected nations, the prospect of lower interest rates can be good news for growth but bad news for savers who prefer Cash ISAs and bonds.
Why Interest and Inflation are Vital for Savers The risk of lower interest rates amid higher tariffs for savers is that we may invariably see a low interest and higher inflation environment that could risk seeing Cash ISA holders make losses on their savings in real-terms. This is because interest rates falling to a possible 3.5% could leave savers with weaker growth prospects, while inflation climbing above 3.
5% would see the value of their ISAs fall below the rising cost of living. With this in mind, it’s worth continually auditing your Cash ISA’s terms to ensure that your savings still align with your financial goals. If interest rates change or inflation overtakes your AER, it’s worth looking at transferring your ISA to something that’s more resilient.
Likewise, if the Bank of England’s base rate of interest increases off the back of higher inflation, switching to a more attractive AER account could make a big difference in your ability to save over time. With the outlook for interest and inflation remaining uncertain, it could be worth picking up a variable rate ISA that’s easy to change up or withdraw your fund from without incurring any fees for the foreseeable future. As always, it’s important to constantly check your savings against your long-term financial goals.
If you become concerned that your strategy isn’t meeting your expectations, you should seek financial advice or explore alternative investment strategies that match your ambitions..
