Cash ISAs: Record £14bn piled in after rumoured cut from Reeves
A record £14bn was put into cash ISAs in April as the new tax year kicked off, fresh figures from the Bank of England show, marking the highest amount since April 1999.
The ballooning savings follow speculation over the fate of cash ISAs amid rumours of a cut to the allowance.
In the Spring Statement earlier this year, Reeves confirmed that ISA reform was on the cards, with the Autumn Budget or next month’s Mansion House speech eyed for potential announcements.
Laura Suter, director of personal finance at AJ Bell, said the record high can be “partly explained by higher interest rates meaning saving feels more rewarding now than it did just a couple of years ago when interest rates were lower.”
Suter said the data suggests savers were moving money from savings accounts into an ISA in order to benefit from tax protections.
This comes after two million taxpayers were expected to face a bill on their savings interest in the last tax year, after rising interest rates and frozen tax thresholds meant increased bills.
Cash ISA reform expected to be on horizon
Suter added the Chancellor’s deliberations on whether to cut the cash ISA allowance was bound to have created a “sense of scarcity” and fuelled a “use it or lose it” mentality.
“The threat of a cut to the allowance is likely to be a spur to action for many, especially given the relentlessly rising tax tide.”
Suter said: “Treasury officials are looking at options for ISA reform to drive a stronger retail investing culture in the UK, as signalled by the chancellor at the Spring Statement.
“In the long run, however, there is considerable doubt that a cut to the Cash ISA allowance would deliver a shot in the arm for the UK stock market.”
Reeves confirmed in late-May she would not reduce the £20,000 tax-free allowance on ISAs.
She told the BBC: “At the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”
City Minister Emma Reynolds has also been vocal in calling for ISA reform, telling a Lords committee in February: “Why have we got hundreds of billions of pounds in cash ISAs? We have failed to drive an investment culture.”
Meanwhile, savers withdrew £11.5 billion from easy access accounts paying interest, and £6.3 billion from easy access accounts paying no interest. These accounts allow savers to withdraw money at any time without penalty, making them attractive for those looks at short-term savings or emergency funds.
Mark Hicks, head of Active Savings at Hargreaves Lansdown, said: “The level of withdrawals from easy access savings seems to indicate a significant proportion of ISA savings has come from people withdrawing from savings and ploughing the money into their ISA equivalents at either end of the tax year, to take advantage of the tax saving.”