Savers are investing money in cash Isas as they look to protect the interest on their savings from tax.
They put more than £11bn into cash Isas in April to take advantage of their £20,000 allowance, which reset at the start of the new financial year on April 6. This represented an impressive 31 percent increase over the same month last year.
Suppliers are competing for their share of savers’ cash, outdoing each other to push their deals to the top of the best buy charts.
They know that one of the best ways to attract the attention of savers is by offering the most impressive rates.
I’ve seen some banks raise their rates two or three times this month. The top rate is currently 4.89 per cent for Shawbrook Bank, but it is unlikely to be for long as providers continue to try to outshine each other.
Tax shelter: Savers poured more than £11bn into cash Isas in April to take advantage of their £20,000 allowance, which reset at the start of the new tax year on April 6.
The jump won’t make much difference to the interest you earn: in most cases, rates rise by 0.01 or 0.02 percentage points, adding just £4 interest at best, even over the full £20,000 Isa allowance.
But competition means that at least rates remain stable for the moment.
Insiders also tell me that providers are looking to attract savers with fixed-rate cash Isas taken in previous years and which are now coming to the end of their life.
Deposits in such accounts are usually substantial and, therefore, of great interest to them.
Those who have contributed the full amount each year since Isas were first introduced will have contributed just under £250,000.
Check the best cash Isa rates in our savings tables
The good news for savers who have one-year fixed rate Isas (the most popular term) up for renewal is that rates are slightly higher than 12 months ago. The top rate then was 4.75 per cent for Virgin Money.
Rates are holding steady despite the fact that we have been hearing predictions for months that the Bank of England’s base rate will fall.
In fact, the average one-year Isa is 4.4 percent; a year ago it was 3.96 percent, says data expert MoneyfactsCompare.
Financial markets have been predicting for months that the Bank of England will begin cutting its base rate from 5.25 percent, but disappointing inflation results have meant there has yet to be a downward move.
The Bank of England could cut the rate tomorrow at the Monetary Policy Committee meeting, but the general consensus is that we won’t see a cut until at least August.
Another advantage is that your interest is automatically tax-free in an Isa and beats the current inflation rate of 2.3 per cent in the 12 months to April.
Today we know the figure for May.
Easy access accounts affected by rate cuts
Careful. Banks and building societies are lowering rates on their easy access accounts.
It is a reminder that we must continue to monitor them, even before the Bank of England’s base rate of 5.25 per cent is reduced.
Last week, Marcus announced cuts to its online savings and cash Isa rates, reducing them from 4.75 per cent to 4.55 per cent.
Chip soon followed suit on his Instant Access account with an interest rate of 4.81 percent from 5.01 percent.
Kent Reliance has also reduced its rate from 4.96 per cent to 4.85 per cent, while Charter Savings Bank has made a huge reduction from 4.93 per cent to 4.6 per cent.
Charter reduced the rate on its Easy Access Cash Isa to 4.5 per cent from 4.97 per cent.
Meanwhile, Virgin Money has announced that from the beginning of August, money in its M Plus current account will earn just 1 per cent. The rate will be cut by more than half from its current 2.02 percent.
sy.morris@dailymail.com