Higher-rate taxpayers could be about £138 better off if they switch to an ISA, as savers are poised to make their strongest returns for years, new analysis shows.
The number of savings products Brits can choose from is at an all-time high, with 1,871 non-ISA deals available – the highest number since records began in February 2007, according to Moneyfacts.co.uk. The number of Cash ISAs has risen to 746, with a record high number of providers at 106.
Record savings rates and product numbers
Moneyfacts said on Wednesday (August 12) that data shows savers "could receive their strongest fixed return in years" and higher-rate taxpayers are "encouraged" to consider switching to ISA.
Moneyfacts' analysis shows the average easy access rate is unchanged at 2.53% and the average notice rate also stayed the same at 3.40%. This compares to an average easy access ISA rate remaining unchanged at 2.72% and an average notice ISA falling to 3.31%.
Fixed rate market shifts in favour of ISAs
Meanwhile, the average one-year fixed rate rose to 4.23% and the longer-term average fixed rate increased to 4.25%. The average one-year fixed ISA rate rose to 4.24% and the longer-term fixed ISA rate increased to 4.27%, according to Moneyfacts.
Caitlyn Eastell, Personal Finance Analyst at Moneyfacts, said the figures show the fixed rate savings market is shifting in favour of ISA savers, with average one-year and long-term ISA rates now moving ahead of non-ISA counterparts.
She added: "Historically, savers have often faced a trade-off between securing competitive rates outside an ISA or keeping their interest tax-free. However, this shift could mean that this compromise may no longer be necessary."
Potential benefit for higher-rate taxpayers
Ms Eastell explained that for a saver with a £20,000 pot the average one-year ISA rate would generate around £848 in interest over a year compared with £846 in a non-ISA account.
The expert said that while the £2 difference may appear to be small, for a higher-rate taxpayer with a £500 Personal Savings Allowance, the ISA could leave them about £138 better off, with the full £848 interest kept compared with around £708 from the non-ISA after tax.
She said that on larger balances, the benefit of switching to an ISA would become even more apparent. Fixed-rate savers may be able to lock in some of the strongest returns in years as average, long-term ISAs and non-ISA rates hit their highest levels since January 2024, Moneyfacts' analyst said.
Ms Eastell said: "Longer-term rates have consistently remained higher than their one-year equals, with the average non-ISA rate higher for the past six months and the ISA rate for the past two months."
"This could be a valuable opportunity for savers who can afford to leave their money untouched to secure a competitive return and protect themselves against any future falls in savings rates."
Please note this article is intended for information purposes only and is not financial advice.
