Brits are piling billions more into Cash ISAs as households scramble to beat a looming HMRC allowance cut and wider tax changes due from April 2027.
New figures from the Bank of England show savers poured £3.1billion into Cash ISAs in May, following an even bigger £12billion surge in April, as fears grow that next year is the last opportunity to make full use of today’s more generous tax-free savings rules. From April 6, 2027, the annual Cash ISA allowance for adults aged 18 to 64 is due to be slashed from £20,000 to £12,000, leaving millions with less room to shelter their savings from the taxman.
The latest Bank of England Money and Credit figures also show total deposits at banks and building societies rose by £5.4billion during May.
Alongside the ISA rush, savers added £1.3billion to fixed-rate savings accounts while withdrawing £2billion from easy-access accounts, suggesting many are locking into higher-paying deals before rates begin to fall.
The average interest rate on new fixed-rate accounts climbed to 4.26% in May, up from 4.07% in April, while easy-access accounts remained stuck at just 1.65%.
‘Filling their boots’
Sarah Coles, head of personal finance at AJ Bell, said the Government’s planned ISA overhaul was having precisely the opposite effect to that intended.
She said: “The dash for Cash ISAs in May, on the back of a £12 billion boost in April, lays bare the unintended consequences of cutting the Cash ISA allowance. This tax year is the last chance for under-65s to pay in up to £20,000 before their allowance is cut to £12,000 from April 6, 2027.
“It means they’re filling their boots while they can. For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the Government would have been hoping for.”
The warning comes as Chancellor Rachel Reeves presses ahead with a series of tax changes affecting savers from April next year.
Alongside the lower Cash ISA limit, savers also face higher tax rates on interest earned outside tax shelters, making ISAs even more valuable.
More tax changes ahead
Clare Stinton, senior personal finance analyst at Hargreaves Lansdown, said the changes meant the countdown had already begun. She said: “People are choosing to house their hard-earned money in Cash ISAs and it’s easy to understand why. As things stand, next April will bring a host of changes for savers.
“A reduced Cash ISA allowance for those aged 18-64 will coincide with the introduction of higher tax rates on savings interest outside of ISAs and pensions, not to mention last week’s announcement that cash savings held in a Stocks & Shares ISA could face a 22% tax on interest from 2027. It’s use it or lose it and the countdown is on.”
The combination of changes means many savers are expected to maximise this year’s £20,000 allowance while they still can. Financial experts say those with substantial cash holdings should review where their savings are held before the rules tighten.
Fixed-rate accounts gain favour
The latest figures also suggest savers are becoming more willing to lock money away for better returns.
According to Moneyfacts, the best easy-access Cash ISA deals currently pay around 4.2% to 4.6%, although many include temporary bonus rates that later disappear.
Meanwhile, one-year fixed Cash ISAs are offering between 4.55% and 4.70%, rewarding those prepared to tie up their money.
However, experts warn fixed accounts are only suitable for cash that will not be needed during the term, as early withdrawals often trigger penalties or loss of interest.
What changes from April 2027?
Cash ISA allowance for adults aged 18-64 falls from £20,000 to £12,000. Higher tax rates on savings interest outside ISAs and pensions are also due to take effect.
Separate changes announced last week mean cash held within a Stocks & Shares ISA is expected to become subject to a 22% tax on interest from April 2027.