In total, savers held £351.6bn in adult cash ISAs by the end of June, a huge rise on the £309.3bn stored at the end of December 2023, Paragon Bank’s analysis found.
Customers with fixed-term cash ISAs boosted their accounts the most among the savings accounts in the first six months of the year. The amount held in those accounts shot up from £157.9bn in the six months to December 2023 to £188.5bn from January to June this year, followed by instant access ISAs which rose by £11.2bn to £156.4bn over the same period.
In total, savers had balances in cash savings worth £1.18trn in the first half of 2024, an increase of just over £70bn from the six months to December 2023.
It signifies a change in pattern as to where savers are opting to store their funds. Indeed, for the first time since November 2022, the amount of cash stored in fixed-rate ISAs overtook alternatives including easy access, notice accounts and regular savers.
This means more Brits are keeping their savings out of accounts where the Personal Savings Allowance comes into effect. The cash-ISA popularity spike came after fourteen consecutive increases to the Bank of England base rate, which led to much more attractive offers from providers.
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In August this year, the base rate finally dropped to 5%, so savers have been told that time is running out to bag inflation-beating rates.
With an ISA, customers can hoard up to £20,000 before they have to spend a penny on tax.
However, with cash savings accounts, the Personal Savings Allowance introduced in April 2016 splits the tax into three thresholds, basic, higher and additional rate.
If you are a basic 20% taxpayer, you can earn £1,000 in savings interest tax-free per year, which lowers to £500 for higher 40% rate taxpayers.
If you are on the additional rate there is no allowance on your savings.
‘Level of deposits has rocketed in recent months’
Derek Sprawling, Paragon Bank managing director of savings, said: “The level of deposits held in cash ISAs has rocketed in recent months, particularly in the fixed-rate segment of the market which has seen the level of balances double since the end of 2022.”
Sprawling added: “The increase is understandable given the growth in savings rates, which means more savers are facing the prospect of paying tax on money held in non-ISA accounts. Even though rates have moderated from their peak, there are still plenty of higher-rate taxpayers who could still benefit from utilising their ISA allowance to limit their exposure.”
