Savers piled £11.7bn into cash Isas in April (2024)

Cash Isas have seen the largest inflows for the start of the tax year since the tax-free accounts were launched in 1999, official data shows.

Savers funnelled a record £11.7billion into cash Isas in April, latest figures from the Bank of England reveal.

It is more than the first three months of the 2023-24 tax year combined, when savers piled more than £9billion into cash Isas.

What's behind the Isa rush?

Experts attribute two factors to April's cash Isa boom - high savings rates on regular accounts means deposits of £20,000 are likely to breach the personal savings allowance and also high cash Isa rates are pulling savers in.

Over the last year, savers have seen some of the highest savings rates in 15 years.

But it means that millions of savers will now owe tax on the interest their savings has built up, potentially for the first time ever.

That is because high interest rates on savings accounts will have caused many savers to breach their Personal Savings Allowance (PSA).

The PSA means that basic rate taxpayers pay no tax on the first £1,000 of interest earned each year, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers don't receive a PSA.

Rachel Springall, finance expert at Moneyfacts Compare said: 'As interest rates rose sharply last year, those savers who decided to invest their cash outside of an Isa wrapper may have breached their PSA.

'Cash Isas can be a better option, particularly for higher rate taxpayers with a large nest egg.

'The longer-term tax-free wrapper is the benefit of a cash Isa, protecting returns regardless of interest rate rises.

'Despite its introduction in April 2016, the PSA limits have not been increased and interest rates are much higher.'

When the PSA was introduced, the best one-year fixed rate bond on the market was paying 1.91 per cent, so a basic rate taxpayer would have breached the £1,000 PSA with a deposit of £52,357.

Today, the best one-year bond is paying 5.21 per cent - so a basic rate taxpayer would breach the allowance with £19,194.

Similarly, the best easy-access account available in April 2016 was paying just 1.45 per cent - so the basic rate PSA would have been breached with a deposit of around £69,000.

With the top rates now paying around 5 per cent, £20,000 would earn £1,000 in interest.

Mark Hicks, head of Active Savings at Hargreaves Lansdown added: 'At a time when income tax thresholds have been frozen, and savings are delivering as much as 5 per cent, anyone with savings of £20,000 faces a potential tax bill, which has pushed cash Isas up the agenda for millions of savers, and brought an Isa season bonanza.'

There are also better cash Isa rates on offer than this time last year.

Savers can find easy-access cash Isas paying as much as 5.2 per cent, while the best one year fixed-rate Isa pays 4.78 and the best two year fix is offering 4.63 per cent.

Rachel Springall adds: 'There was a flurry of activity among Isa providers, launching and increasing Isa rates to entice deposits.

'Those who have yet to open a new Isa for this tax year will find a couple of providers have boosted the rates on their one-year fixed rate Cash Isas, and Virgin Money holds firm in the top spot which pays 5.05 per cent.'.

Meanwhile, savers paid £8.4billion into banks and building societies in April – the highest since September 2022.

In addition to cash Isas, savers paid £600million into fixed-rate accounts, and £400million into easy-access accounts. Meanwhile, savers took £1.4billion out of accounts paying no interest

Hicks said: 'The past few weeks has seen more movement in the yield curve, so while easy-access rates have been cut, there are still some really attractive rates in the fixed-rate market – particularly over shorter terms.

'If you don't need the money immediately, it's worth considering a fix, and checking with smaller banks and cash savings platforms, where you can make more than 5 per cent by fixing for as little as 3 months at the moment.'