Savers put money into Isas because they want to protect the interest on their savings from tax.
They put more than £11 billion into cash Isas in April to take advantage of their £20,000 allowance, which was reset at the start of the new tax year on April 6. This was no less than 31 percent more than in the same month last year.
Providers compete for their share of savers’ money by outdoing each other to get their deals to the top of the best-buy tables.
They know that one of the best ways to get savers’ attention is to offer the most impressive rates.
I have seen some banks raise their rates two or three times this month. The top rate is currently 4.89 percent from Shawbrook Bank, but that is unlikely to remain that way for long as providers continue to try to outdo each other.
Tax shelter: Savers put more than £11 billion in cash into Isas in April to take advantage of their £20,000 allowance, which resets at the start of the new tax year on April 6
The leap forward won’t make much difference to the interest you earn; in most cases rates rise by 0.01 or 0.02 percentage points, adding only £4 interest at best, even on the full £20,000 Isa allowance.
But due to competition, rates will remain the same for the time being.
Insiders also tell me that providers want to attract savers with fixed-rate loans that were taken out in previous years and are now reaching the end of their term.
Deposits in such accounts are often significant and therefore of great importance to them.
Those who have deposited the full amount every year since Isas were first introduced will have deposited just under £250,000.
See the best cash Isa rates in our savings tables
The good news for savers with one-year fixed rate Isas – the most popular term – that require renewal is that interest rates are slightly higher than they were 12 months ago. The highest rate at the time was Virgin Money’s 4.75 percent.
Interest rates are holding steady, even though we have been hearing predictions for months that the Bank of England’s base rate will fall.
In fact, the average one-year Isa is 4.4 per cent – a year ago it was 3.96 per cent, say data auditors MoneyfactsCompare.
The financial markets have been predicting for months that the Bank of England will lower the base interest rate from 5.25 percent, but disappointing inflation results mean that there has not yet been a downward movement.
The Bank of England could cut rates at tomorrow’s Monetary Policy Committee meeting, but the general consensus is that we won’t see a rate cut until August.
Another plus is that your interest is automatically tax-free in an Isa and is better than the current inflation rate of 2.3 per cent in the 12 months to April.
Today we discover the May figure.
Easily accessible accounts affected by interest rate cuts
Watch out. Banks and building societies are cutting rates on their easy-to-access accounts.
It reminds us that we need to keep checking these even before the Bank of England’s base rate is cut from 5.25 percent.
Last week, Marcus announced cuts to online savings and cash rates, from 4.75 percent to 4.55 percent.
Chip soon followed suit on its Instant Access account, with interest rates dropping from 5.01 percent to 4.81 percent.
Kent Reliance has also cut its interest rate from 4.96 percent to 4.85 percent, while Charter Savings Bank has made a huge cut from 4.93 percent to 4.6 percent.
Charter cut the rate on its easy-access cash Isa from 4.97 per cent to 4.5 per cent.
Meanwhile, Virgin Money has announced that money in its M Plus current account will earn just 1 per cent from the start of August. The rate should be more than halved from the current 2.02 percent.
sy.morris@dailymail.com