It is currently the biggest ever cash ISA season – with £17.8 billion inflows in March & April.
Net mortgage borrowing has hit its lowest on record (omitting Covid times) and NS&I draws are in £1.6 billion of savers money as rate cuts could be around the corner.
Laura Suter, head of personal finance at AJBell, comments on the latest Money and Credit data from the Bank of England:
“We saw the biggest ever cash ISA season with a record-breaking £17.8 billion of money paid into cash ISAs in March and April this year, as savers 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.
“A huge £11.9 billion was paid into cash ISAs in April, the largest ever recorded, on top of the £5.8 billion paid in during March – a record for that month. Cash ISA subscriptions usually peak in March and April each year as savers leave it down to the deadline to pay money into the tax-free accounts before their allowance resets at the new tax year on 6 April.
“Savers faced a triple threat this year that could mean they pay tax on their savings interest for the first time ever. This year rising interest rates mean that savers are getting ahigher return on their money and many will breach their Personal Savings Allowance, which gives £1,000 of tax-free savings income for basic-rate taxpayers and £500 for higher-rate taxpayers, but no allowance for additional-rate taxpayers. What’s more, the government’s frozen tax bands means more people will be pushed into the next tax bracket and see that tax-free savings allowance either cut in half or wiped out altogether. On top of that, the additional rate tax band has been cut to £125,140 for the current tax year, meaning more people will see their Personal Savings Allowance taken to zero and face 45% tax on all their savings interest.
“For example, someone with £50,000 of savings who earned £130,000 a year would have faced no tax on that savings interest during times of low interest rates when it was earning 1% interest, as it would have been within their £500 Personal Savings Allowance. However, in the current tax year if that same pot was now earning 5% interest, they’d face a£1,125 tax bill* on the interest as a result of rising rates but also now being in the additional rate tax band, and so getting no Personal Savings Allowance.”