The ISA cash savings glut continues with almost £20bn flowing into tax-free accounts in the past three months

Savers continued their rush for ISAs as £3.4bn flowed into tax-free accounts in June, new data from the Bank of England shows.

This comes after savers funnelled £4.2bn into Isas last month, a record for May since Isas were launched in their current form 25 years ago, on top of a record £12.3bn in April.

This means that in the first three months of the 2024/25 tax year, early savers have saved almost £20 billion in cash ISAs.

By comparison, savers invested £15.4bn in cash Isas in the first three months of last year’s financial year, This is Money analysis of Bank of England data shows – an increase of almost 30 per cent.

In June 2023, savers kept £3.3 billion in their Isa accounts in cash. This is a very different situation to June 2022, when savers withdrew £139 million more from their Isa accounts than they had put in, while in June 2021 savers withdrew £526 million more than they had put in.

During the first three months of the 2022 financial year, savers withdrew £2 billion more than they deposited.

There is currently a clear incentive for savers to put as much of their savings as possible into cash ISAs.

Savers are facing higher tax bills on their savings interest for breaching tax-free personal savings allowances, something made easier by high interest rates and a frozen personal savings allowance.

Last month, HMRC figures showed it expects to raise £10.4bn in tax-related interest on savings in the current tax year.

At a time when income tax thresholds have been frozen and savings are earning up to 5 per cent, a basic rate taxpayer with £20,000 in savings is already facing a potential tax bill.

Between January 2023 and June 2024, almost £77bn has flowed into cash ISAs, Bank of England figures show.

By comparison, between January 2021 and June 2022, £9bn of money was withdrawn from tax-free accounts, meaning more savers were taking cash out than putting it in.

Mark Hicks, director of Active Savings at Hargreaves Lansdown, said: ‘A large number of taxpayers decided to secure their cash ISA allowance sooner rather than later, while they knew where they stood.

‘The long tail of the cash deposit season has already stretched into June, with savers stashing another £3.4bn in tax-free accounts. This comes after a bumper May and record-breaking April.

“It’s not a surprise. The general election campaign has been going on for a whole month and every day there was new speculation about whether a Labour government would raise every tax imaginable.”

Nick Winter, financial planner at Quilter, said: “An additional £3.4bn was put into Isas. The rise in household savings is a step in the right direction and, given the tightening of various tax allowances and thresholds, it’s no surprise that more people are turning to Isas for their tax efficiency.”

HMRC braces for a payday from savings tax interest

HMRC expects an additional £3.8bn in revenue from savings tax this financial year, its latest figures show.

The amount tax savers pay in interest on their savings will rise to £10.37bn in 2024/25, up from £6.6bn in 2023/24, new estimates show.

This represents an increase of almost £3.8 billion, a jump of 58 per cent over the course of a year.

This means the amount of savings interest tax savers have paid since 2021, when the Bank of England began raising interest rates, has increased by 740 per cent.

Basic rate taxpayers receive a £1,000 buffer and higher rate taxpayers £500 on top of what they can earn in interest before the personal savings allowance kicks in, while additional rate taxpayers get no personal savings allowance.

Of the total sum HMRC expects to receive in tax on savings interest, £1.14bn will come from basic rate taxpayers, £2.4bn will come from higher rate taxpayers and a staggering £6.8bn will come from additional rate taxpayers.

In December 2021, a basic rate taxpayer could put £526,315 into the average easy-access account or £125,000 into the average one-year fixed-rate bond before exhausting their personal savings allowance, Moneyfacts Compare data shows.

This is why saving in a good cash ISA has become more important than ever for savers.

> See This is Money’s guide to savings interest tax and the personal savings allowance