March and April 2023 a record for cash Isa deposits

Cash Isa season was back with bang this year with nearly £18billion of money pouring into the tax-free accounts in March and April, official figures show.

After a decade of low returns which saw savers shun cash Isas, better rates and the threat of breaching Personal Savings Allowance limits has seen tax-free accounts firmly back in focus.

A huge £11.9billion was paid into cash Isas in April, the largest ever recorded, on top of £5.8billion paid in during March.

For the 2023-24 tax year, savers can squirrel away £20,000. Cash Isa season, which typically runs from March to May – either side of the new tax year – traditionally saw banks and building societies clamber over each other to offer top deals.

For the first time in years, that has been the case and savers have taken full advantage.  

And while rates on cash Isas still pay slightly less than ordinary accounts, there is the threat after a year of rising rates that savers could bust PSA limits.

The PSA allows higher-rate taxpayers to earn £500 in interest on savings without having to pay tax, and basic-rate taxpayers £1,000.

When savings rates were in the doldrums, the PSA seemed generous. Early last year, the best easy-access account paid just 0.5 per cent.

A basic-rate taxpayer would have needed £200,000 in an account to reach the £1,000 interest level allowed before the tax was due. This meant that most people didn’t need to think about tax on their savings at all.

Even for 40 per cent higher-rate payers, the sum you could save before breaching the allowance was £100,000.

But now easy-access rates pay as much as 3.82 per cent.

In an account paying 3.82 per cent you’ll reach your personal savings allowance with £26,000 as a basic-rate payer and £13,000 as a higher-rate one.

Rates on best-buy one-year bonds have also risen to a decade high of 5.25 per cent.

At 5.25 per cent interest rates, you’ll use up the annual allowance with a £19,000 pot as a basic-rate payer, or £9,500 as a higher-rate one.

Laura Suter, head of personal finance at AJ Bell said: ‘Savers have rushed to shelter their money from the Government’s bumper tax grab. 

‘This total is almost six times the amount of money that was paid in during the same two months last year, with rising interest rates meaning more savers wanted to stop tax eating into their savings interest.’

The top easy-access cash Isa pays 3.62 per cent from Cynergy Bank, while you can get 4.43 per cent fixed for a year with Shawbrook Bank.

>> Here are the independent This is Money best buy cash Isa tables 

Fixes also back in flavour 

Savers also continued to move money into fixed-rate accounts to make the most of higher savings rates with net inflows of £3.7billion into fixed-rate savings.

These inflows helped to offset the net £5.4billion in withdrawals made from easy-access savings accounts in April. 

Savers can now get as high as 5.35 per cent on fixed-rate savings and 3.85 per cent on easy-access.

Households also deposited £1.6billion into National Savings and Investment accounts in April – although this was down from £3.8 billion in March. 

Suter adds: ‘NS&I continued to be a big beneficiary of savers’ money, as the security offered by the government-backed provider appealed to savers spooked by the US banking mini-crisis. 

‘NS&I has also significantly increased its rates, providing another juicy lure for savers. 

‘April saw another £1.6billion paid into NS&I accounts, less than half the £3.8billion paid in March but still meaty inflows. 

‘If savers continue to flock to the provider we could well see NS&I cut rates to stem the inflows, so it doesn’t overshoot its fundraising target from the government.’