Savers stashed £4.2billion away in Isas into tax-free Isas in August, latest Bank of England data shows.
It means savers have piled £17.2billion more into cash Isas in the 12 months to August 2024 than they did in the same period during 2023.
Isa inflows were up 51 per cent in the 12 months to August 2024 compared to the same period in 2023.
Savers funnelled £35.4billion into Isas in the 12 months to August 2023 – but in the 12 months to August 2024, Isa inflows hit £53.6billion, This is Money analysis reveals.
Bank of England data shows Isa inflows rocketed by £17bn between the 12 months to August 2023 and the same period in 2024
What’s behind the £17bn jump?
The £4.2billion of Isa inflows in August 2024 actually marks a slowdown from August 2023, when savers piled £5.16billion into Isas.
But earlier in the 2024/25 tax year, Isas received a record £12.3billion in April, which has helped push the 12 month surge.
There are two main factors behind the cash Isa boom – higher savings rates on regular accounts means deposits of £20,000 are likely to breach the personal savings allowance and also high cash Isa rates have pulled savers in.
Over the last eighteen months, savers have seen some of the highest savings rates in 15 years.
The average easy-access account now pays 3.08 per cent interest according to rates monitor Moneyfacts Compare.
But it means that millions of savers will now owe savings tax on their pots, potentially for the first time.
The number of people expected to pay tax on their savings interest will have trebled in three years.
Almost 2.1million people are expected to pay tax on their savings this year, up from around 647,000 in the 2021/22 tax year, a Freedom of Information request from AJ Bell reveals.
The number of people expected to pay savings tax jumped to 1.1million in the 2022/23 tax year and again rose to 1.9million in the 2023/24 tax year. Data shows that almost 2.1million people could pay savings tax in the current tax year
That is because high interest rates on savings accounts will have caused many savers to breach their Personal Savings Allowance (PSA).
> Best cash Isa rates: This is Money’s independent best buy tables
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.
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 per cent – so a basic rate taxpayer would breach the allowance with £20,050.
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 5 per cent, £20,000 would earn £1,000 in interest.
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