- Skipton Building Society reported a 203% increase in Isa account openings
- According to the building society, this is a “significant increase” on last year.
- New Isa rules and higher interest rates are responsible for the jump
A record number of savers rushed to open an Isa in the first two weeks of April this year to make the most of their tax-free allowance and the new Isa rules.
There was a 203 per cent increase in the number of Isa accounts opened in the first two weeks of April this year compared to the same period last year, new figures from Skipton Building Society reveal.
The building society also reported a 76 per cent increase in online Isa activity in the first two weeks of April, compared to the same period last year.
The rush comes as savers have been trying “more than ever” to make the most of high savings rates and their tax-free Isa allowances.
Hurry up! A wave of savers flocked to open Isas in the first two weeks of April, leading to a 200% increase in the number of Isas opened since this time last year.
At the beginning of April this year, the average easy access Isa was paying a rate of 3.38 per cent and the average one-year Isa rate was 4.52, according to rate tracker Moneyfacts Compare.
That’s even higher than at the start of April 2023, when the average easy access Isa paid 2.15 per cent and the average one-year fix paid 3.69 per cent.
> See This is Money’s pick of the five best cash Isas
Rachel Springall, finance expert at Moneyfacts Compare, said: “Skipton Building Society allows savers to spread their cash Isa across different rates, which can be useful for those who want to look for a potentially higher fixed rate, but who also need something more cash on hand.
‘The increase in account openings with Skipton BS this year could be attributed to a couple of factors: firstly, Isa rates are higher this year as are other savings rates, so there is more desire for them. Secondly, higher rates can mean that savers with substantial funds could default on their personal savings allowance, making Isas a more popular option for sheltering cash from tax.
With interest rates rising so much over the last two years, many more savers will have realized that they are paying tax on the interest they earn on their savings, as they are using their personal savings allowance with smaller deposits.
When rates were low, this did not matter as much, as the PSA protected many from taxing their interest, although the £1,000 allowance is halved for higher rate taxpayers and eradicated for lower rate taxpayers. additional fees.
But now, with the best easy-access savings accounts paying 5 per cent or more, a basic rate taxpayer with £20,000 saved would start to lose interest in tax.
The best easy access account on the market currently pays 5.02 per cent and is offered by Oxbury Bank.
Someone depositing £20,000 into this easy-access account would earn £1,004 interest in a year, so even a basic rate taxpayer would exceed their annual tax-free savings allowance of £1,000 with a £20,000 deposit, while A higher rate taxpayer (someone earning between £50,271 and £125,140 a year) would easily exceed their lower allowance of £500.
On £1,004 of annual interest, a higher rate taxpayer gets the first £500 tax-free, but will pay 40 per cent tax on the remaining £504, meaning they would end up with £802.4 after tax .
The savings tax has a chilling effect on the best easy-access accounts. This makes the brilliant rate on Oxbury’s easy access, best buy account at 4.02 per cent if you are a basic rate taxpayer and 3.01 per cent if you are a higher rate taxpayer.
Springall said: “Those who want to invest for longer will find that major fixed Isas are paying less than their fixed rate bond counterparts, but fixed bond rates are higher than a year ago at this time, so that those who invest could end up failing to meet their obligations. Public service announcement.’
Anna Bowes, co-founder of Savings Champion added: ‘Humble Isa is back. Isas had been through years of stagnation after the PSA was introduced in April 2016, which meant many savers would no longer pay tax on their savings and therefore did not need to make use of an Isa.
‘However, with interest rates rising, savers need to protect more of their cash in Isas to avoid paying more tax than necessary. And interest rates on Isas have greatly improved again, with increased competition between providers.
“If you want to protect your cash from the taxman, it makes sense to open your Cash Isa as early as possible in the tax year, so you can start earning tax-free interest for longer, so it’s good to see this jump in the number of people using their Isa allowance sooner rather than later.’