March and April 2023 a record for cash Isa deposits

The Cash Isa season was booming again this year with nearly £18bn in cash pouring into tax-free accounts in March and April, official figures show.

After a decade of low returns, with savers avoiding Money Isas, better rates and the threat of exceeding personal savings limits have brought tax-free accounts back into the spotlight.

A massive £11.9bn cash was paid to Isas in April, the largest on record, on top of the £5.8bn paid in March.

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

This is the first time in years and savers have fully benefited from it.

And while the interest on cash ISAs still pays slightly less than regular bills, there’s a danger that savers will exceed PSA limits after a year of rising interest rates.

The PSA allows higher rate taxpayers to earn £500 in interest on savings without paying tax, and base rate taxpayers £1,000.

When savings rates were in the doldrums, the PSA seemed generous. At the beginning of last year, the most accessible bill paid only 0.5 percent.

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

Even for 40 percent higher payers, the amount you could save before going over the fee was £100,000.

But now easy rates pay a whopping 3.82 percent.

In an account that pays 3.82 per cent, you reach your personal savings with £26,000 as the base payer and £13,000 as the higher rate.

Yields on one-year best-buy bonds also rose to a ten-year high of 5.25 percent.

With an interest rate of 5.25 per cent, you use the annual allowance with a pot of £19,000 as the base payer, or £9,500 as a higher rate.

Laura Suter, head of personal finance at AJ Bell, said: ‘Savers are scrambling to protect their money from the government’s massive tax grab.

“This total is almost six times the amount deposited in the same two months last year. Due to the rising interest rates, more savers wanted to stop taxing their savings interest.’

The best, easily accessible money Isa pays 3.62 percent from Cynergy Bank, while you can get 4.43 percent fixed for a year at Shawbrook Bank.

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

Also fixes back in taste

Savers also continued to transfer money into fixed rate accounts to make the most of higher interest rates on savings with net inflows of £3.7bn into fixed rate savings.

This inflow helped to offset the net £5.4 billion of withdrawals from easy access savings accounts in April.

Savers can now get up to 5.35 percent on fixed-interest savings and 3.85 percent on low-threshold.

Households also deposited £1.6bn into national savings and investment accounts in April – although this was less than £3.8bn in March.

Suter added, “NS&I continued to be a big beneficiary of depositors’ money, as the security offered by the government-backed provider appealed to savers fearful of the US mini-banking crisis.

‘NS&I has also significantly increased its rates, which is another juicy temptation for savers.

A further £1.6bn was deposited into NS&I accounts in April, less than half the £3.8bn paid in March, but still a solid inflow.

“If savers continue to flock to the provider, we could very well see NS&I cut rates to stem the influx so it doesn’t exceed its government fundraising target.”