Savers warned about inflation ahead of ISA deadline

Crowdfunding site Abundance Generation has warned that low interest rates means savings invested in cash ISAs could lose value because of inflation.

Even with the tax break, savings will lose out to inflation at an average rate of 0.5% a year, the organisation adds.

More than £200 billion is currently held in cash ISA accounts in the UK. This year alone, 11 million savers are expected to place more than £40 billion into a cash ISA.

Abundance suggests that savers could invest in renewable energy projects as an alternative means to grow their savings. Britain’s green economy grew by 5% last year and is looking for £110 billion in investment to meet renewable energy targets over the next seven years. Whilst investing presents additional risks, the returns can be greater.

Karl Harder, co-founder and managing director of Abundance, said, “The UK is seeing fast growth in two distinct areas right now: renewable energy and alternative finance. We believe the British public should be benefitting from this growth, and that’s why we’re warning people not to sleepwalk into ISAs this year.

“It’s possible to have a win-win scenario and get decent, above inflation returns investing in things you believe in.”

In separate research, uSwitch.co.uk found that just 54% of Britons plan to put money into an ISA this year, though one in 10 blamed low interest rates for not using the incentive.

Harder added, “We’re also calling for ISAs to be open for green investment. The UK needs £110 billion in renewables to meet our 2020 target of 15%, and the public wants above inflation returns.”

The Treasury is currently in discussions around extending the ISA regime to include peer-to-peer and debt-based lending. This could provide savers greater flexibility, transparency and control over their finances whilst incorporating their ethical values.

Abundance has recently announced a new opportunity for investors. A wind project in Cornwall is looking for £1.5m investment and is expected to give investors a return of 8.4-9.3% over its 20-year term. Other projects include solar schemes in Nottingham and Kent.

Further reading:

Poor ISA rates deter consumers – costing £191bn in tax-free savings

Treasury looks to extend ISA reach to peer-to-peer finance and crowdfunding

Consider sustainability and ethics when investing in ISAs1 this year

First UK Islamic ISA gives consumers ethical tax-free way to save

Budget 2013: green businesses call for sustainable ISA incentives