Record £9bn pumped into ISAs as Brits capitalise on higher interest rates

Brits are yanking cash out of high street savings accounts and piling it into products that tie up their money for a longer period in exchange for a better interest rate, official figures out today show.

Savers dropped £3.6bn into banks and building societies in April, nearly all of which went into fixed savings accounts and individual saving accounts, or ISAs, according to data from the Bank of England.

Some £9bn was pumped into ISAs, the greatest inflow the Bank has recorded, likely driven by Brits trying to capitalise on higher interest rates.

ISAs are savings vehicles that typically offer a rate of return – much like interest on a high street savings bank account – or a dividend. Depositors pay no tax on income generated from an ISA.

The Bank of England has hiked interest rates twelve times in a row to 4.5 per cent, their highest level in more than a decade, in a bid to tame multi-decade high inflation.

While that has chilled economic activity, it has made it more attractive for people to save rather than spend. Inflation, which is running at 8.7 per cent, is still higher than returns offered on saving accounts, meaning depositors are losing money in real terms.

Customers can set aside £20,000 annually into ISAs, which must be paid in before the end of the tax year in April.

As a result, April’s record £9bn jump was likely driven by Brits scrambling to transfer cash into their ISAs before their annual allowances ran out.

The rising appeal of ISAs’ protection from tax liabilities comes as the UK is on course to have its highest tax burden since just after the Second World War.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “ISAs are having their moment in the sun.”

“Higher savings rates and frozen tax thresholds mean protecting our savings from tax is a top priority,” she added.

Including deposits into the government-backed National Savings and Investments (NS&I) scheme, families set aside an additional £5.2bn into bank accounts. In March, they pulled a record £4.8bn from banks and building societies, though that was partially offset by deposits in the NS&I scheme. 

Analysts said March’s record outflow was caused by customers pumping money into safer assets after they were spooked by the collapse of Credit Suisse and Silicon Valley Bank.

April’s deposit increase signals households “are less concerned if their savings are protected by a full government guarantee, as opposed to only the £85,000 protection offered to bank depositors,” Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said. 

“April’s data also showed that households were less willing to reduce their savings in order to fund real consumption; the month-to-month increase in total liquid assets was the largest since November, while the increase in net consumer credit was in line with the average so far this year,” she added.