Cash ISAs have seen the largest inflows for the start of the tax year (2023) since ISAs were launched in 1999.
AJ Bell and Bank of England research has found that in the first three months of this tax year, savers have put more than £9bn of money in cash ISAs.
AJ Bell head of personal finance Laura Suter said more people have realised “the taxman could be coming for their savings interest”.
And so placed their money in ISAs where both interest and investment growth are tax free.
In July alone, savers placed over £3bn into ISAs, which is the highest inflows for July since 2014.
Suter added that the increase in interest rates during 2023 means more people will breach their tax-free personal savings allowance and pay income tax on their savings interest.
However, she believes that a higher level of press attention regarding this issue has resulted in savers acting before being taxed and moving their money into a cash ISA.
Up to £20,000 can be put into an ISA each tax year, with the interest on the amount not being subject to tax.
At the same time National Savings and Investments (NS&I), a state-owned savings bank in the UK has seen £300m of outflows in the past two months.
Suter said: “The government-backed savings provider has been continually hiking the rates on its accounts and the prize draw on Premium Bonds to try to draw savers’ money in.”
The cost-of-living crisis and high mortgage costs also weighed on people’s ability to save in July as the overall amount the nation added to savings accounts dropped.
This was due to people having to “dip into their savings to pay bills or are using the money to overpay on mortgages ahead of their re-mortgage”.
Suter added that some people will have also used savings this summer to go on holiday or spend on days out which has added to the issue.
