Cash Isas receives an additional £17.2bn in the last 12 months compared to the previous year

Savers stashed £4.2bn in tax-free Isas in August, the latest Bank of England data shows.

This means savers have accumulated £17.2bn more in cash Isas in the 12 months to August 2024 than in the same period during 2023.

Isa inflows rose 51 per cent in the 12 months to August 2024 compared to the same period in 2023.

Savers funneled £35.4bn into Isas in the 12 months to August 2023, but in the 12 months to August 2024, Isa inflows reached £53.6bn, This analysis reveals isMoney.

What’s behind the £17bn jump?

The £4.2bn of Isa inflows in August 2024 actually marks a slowdown from August 2023, when savers piled up £5.16bn in Isas.

But at the start of the 2024/25 financial year, Isas received a record £12.3bn in April, which has helped fuel the 12-month rise.

There are two main factors behind the rise of the Cash Isa: higher savings rates on regular accounts mean deposits of £20,000 are likely to breach the personal savings allowance and also the high Cash Isa rates have attracted savers.

Over the past eighteen months, savers have experienced some of the highest savings rates in 15 years.

The average easy access account now pays 3.08 per cent interest according to rate monitor Moneyfacts Compare.

But it means millions of savers will now have to pay taxes on their savings, potentially for the first time.

The number of people expected to pay tax on the interest on their savings will have tripled in three years.

Almost 2.1 million people are expected to pay tax on their savings this year, up from around 647,000 in the 2021/22 tax year, a Freedom of Information request from AJ Bell reveals.

The number of people expected to pay the savings tax increased to 1.1 million in the 2022/23 financial year and increased again to 1.9 million in the 2023/24 financial year. Data shows almost 2.1 million people could pay the savings tax in the current fiscal year

This is because high interest rates on savings accounts will have caused many savers to default on their Personal Savings Allowance (PSA).

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The PSA means basic rate taxpayers pay no tax on the first £1,000 of interest earned each year, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not receive a PSA.

Despite its introduction in April 2016, PSA limits have not been increased and interest rates are much higher.

When the PSA was introduced, the best one-year fixed rate bond on the market paid 1.91 per cent, so a basic rate taxpayer would have defaulted on the £1,000 PSA with a deposit of £52,357.

Today, the best one-year bond pays 5 per cent, so a basic rate taxpayer would default on the deduction by £20,050.

Similarly, the best easy access account available in April 2016 paid just 1.45 per cent, so the PSA base rate would have been breached with a deposit of around £69,000.

With the highest rates now paying 5 per cent, £20,000 would generate £1,000 in interest.