Savers have been piling billions into Cash ISAs, with fresh Bank of England data showing £3.1 billion deposited in May following a £12 billion influx in April, as households rush to beat an impending HMRC allowance reduction and broader tax changes set for April 2027.
From 6 April 2027, the annual Cash ISA allowance for adults aged 18 to 64 is set to be cut from £20,000 to £12,000, leaving millions with reduced capacity to protect their savings from taxation. The alert follows Chancellor Rachel Reeves pushing forward with a raft of tax changes affecting savers.
Record Deposits as Savers 'Fill Their Boots'
Total deposits at banks and building societies increased by £5.4 billion during May, according to the Bank of England Money and Credit data. Alongside the ISA rush, savers deposited £1.3 billion into fixed-rate savings accounts while withdrawing £2 billion from easy-access accounts, indicating many are securing higher-paying deals before rates start to decline.
The average interest rate on new fixed-rate accounts rose to 4.26% in May, up from 4.07% in April, while easy-access accounts remained static at just 1.65%.
Sarah Coles, head of personal finance at AJ Bell, said the Government's planned ISA overhaul was having precisely the opposite effect to that intended. She stated: "The dash for Cash ISAs in May, on the back of a £12 billion boost in April, lays bare the unintended consequences of cutting the Cash ISA allowance. This tax year is the last chance for under-65s to pay in up to £20,000 before their allowance is cut to £12,000 from April 6, 2027. It means they're filling their boots while they can. For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the Government would have been hoping for."
More Tax Changes Ahead
Clare Stinton, senior personal finance analyst at Hargreaves Lansdown, said the changes meant the countdown had already begun. She commented: "People are choosing to house their hard-earned money in Cash ISAs and it's easy to understand why. As things stand, next April will bring a host of changes for savers. A reduced Cash ISA allowance for those aged 18-64 will coincide with the introduction of higher tax rates on savings interest outside of ISAs and pensions, not to mention last week's announcement that cash savings held in a Stocks & Shares ISA could face a 22% tax on interest from 2027. It's use it or lose it and the countdown is on."
The combination of changes means many savers are anticipated to make the most of this year's £20,000 allowance while they still have the chance. Financial specialists advise those with considerable cash holdings to review where their savings are kept before the rules become more stringent.
Fixed-Rate Accounts Prove Increasingly Popular
The latest data also indicates that savers are growing more inclined to lock money away in exchange for better returns. According to Moneyfacts, the top easy-access Cash ISA deals currently offer around 4.2% to 4.6%, though many include temporary bonus rates that subsequently vanish. Meanwhile, one-year fixed Cash ISAs are providing between 4.55% and 4.70%, benefiting those willing to tie up their funds.
However, experts caution that fixed accounts are only appropriate for cash that won't be required during the term, as early withdrawals frequently incur penalties or loss of interest.
What Changes from April 2027?
- Cash ISA allowance for adults aged 18-64 drops from £20,000 to £12,000.
- Higher tax rates on savings interest outside ISAs and pensions are also set to come into force.
- Separate changes declared last week mean cash held within a Stocks & Shares ISA is expected to become liable to a 22% tax on interest from April 2027.
