Could Trump's Tariffs Impact Cash ISA Rates in 2025?

With 14.5 million subscribers, Cash ISAs are among the UK’s favourite savings strategies, but could Donald Trump’s Presidency affect our individual savings account rates in 2025? 

There’s a growing danger that the President’s reliance on tariffs as a political bargaining tool and source of fundraising threatens the United Kingdom’s control over inflation, and may lead to higher interest rates to combat a hike in the cost of living. 

Already, Trump has announced 25% tariffs on Canada and Mexico, as well as an additional 10% on imports from China. Crucially, the President also suggested that both the UK and European Union could also be in line for tariffs due to an uneven balance of trade. 

Whether tariffs are placed on the United Kingdom or not, it appears that our Cash ISAs will be impacted by the trade wars that could spread around the world as a result of the import hikes. 

What are Tariffs? 

Tariffs are generally imposed to control imports into a country and protect domestic industries while generating more income for governments. 

Trump isn’t the only leader to impose tariffs and many other nations have implemented them as a protectionist measure, particularly when it comes to agriculture products to help maintain a preference for domestic producers. 

However, Trump has opted to impose tariffs as an economic tool. According to the President, his use of tariffs has been down to trade surpluses, because the nations affected sell more to the US than they import. 

Tariffs mean that the cost of buying imported goods rises for businesses, making it more expensive as a whole. In some cases, affected nations retaliate with their own set of tariffs, and as a result, global supply chains could change or higher import costs may be passed on to consumers. 

How Could Tariffs Affect my Cash ISA? 

Cash ISAs have grown in popularity due to their reliable returns, which are akin to traditional savings accounts. 

Because savers have a £20,000 tax-free allowance to work with, it’s possible to save money at a pre-determined rate and have no obligation to pay tax on any of your earnings. 

Linked to UK interest rates, Cash ISAs are useful for savers who don’t want to risk their money on stocks and shares. Instead, fixed rate ISAs offer a fixed interest rate for a certain amount of time, while variable rate ISAs generally more in-line with the Bank of England’s base rate. 

Due to Cash ISA rates being linked to interest rates, any changes in the economic outlook for both UK inflation and interest will significantly change the interest you would see on your Cash ISA. 

Inflation Risks

The big problem with Trump’s tariffs, according to analysts, is that the strategy could see higher import costs passed on to consumers. This would pave the way for a resurgence in inflation rates. 

Inflation has an uneven impact on Cash ISAs. Because rates are tied to the Bank of England’s base rate, there’s a risk that high inflation could cause savers to lose money in real terms if their interest is outpaced by the depreciating GBP. 

In recent years, UK inflation peaked at 11.1% in October 2022, and in the surrounding years, many Cash ISA savers struggled to make any profits that were higher than inflation rates. 

When CPI inflation reached 2.5% in the 12 months to December 2024, average monthly interest on Cash ISA deposits fell to 1.84%, meaning that savers had to live with a real-term loss of 0.66%. 

If the cost of Trump’s tariffs is passed on to consumers, even if the UK escapes its own tariffs, consumers could see prices rise significantly. 

Better Rates in a Trade War? 

The potential upside for Cash ISA holders, particularly those with a variable rate individual savings account, is that higher inflation is generally followed by Bank of England base rate hikes. 

This means that a prospective trade war could bring a rising CPI that triggers a series of interest rate hikes that could send the tax-free returns of Cash ISAs higher for savers. 

If you’re a risk-averse saver, it may be worth looking at the Bank of England’s stance on interest rates. If there’s an indication of a hawkish reversion in response to rising inflation, it may be worth looking at your Cash ISA rates. There may be a period where you can access an AER that exceeds inflation and offers more long-term ISA growth. 

Uncertainty to Remain

The unpredictability of Donald Trump’s Presidency means that it’s worth keeping a close eye on both inflation and interest rates if you’re using a Cash ISA. Changes in the outlook for both are likely to have a significant impact on your ISA rates, and may mean that you can improve your access to higher returns. 

Nothing is certain when it comes to tariffs, but Cash ISA holders should stay vigilant. Moving decisively to improve your access to returns could help to offer stronger access to savings growth in 2025.