Cash Isa rates have improved to their highest point since 2009 but advisers have been urged to get their clients to take advantage of the tax-efficient savings wrapper before the tax-year-end.
According to the latest Moneyfacts UK savings trends treasury report, interest rates have improved across cash Isas amid a "buoyant" savings market, led by action by the Bank of England over the past year to raise the bank base rate from 0 per cent to 4.25 per cent, as at time of writing.
Rachel Springall, finance expert at Moneyfacts, said: “The savings market overall is going through a buoyant period thanks to a mix of rate competition, base rate rises and the rush of launching enticing offers for savers looking for a deal before the 2023/2024 tax year begins."
The clock is ticking, these transactions take time and so the deadline for doing them is always ahead of the tax-year-end deadline.Laura Suter, AJ BellThe Moneyfacts report showed the average easy access Isa rate rose month-on-month to 2.01 per cent - its highest point since February 2009 (2.02 per cent).
Those savers comparing short-term fixed Isas will also find the average one-year fixed Isa rose to 3.56 per cent, its highest point since December 2008 (4.58 per cent).
The average one-year fixed Isa rose to 3.56 per cent, its highest point since December 2008 (4.58 per cent).
The average longer-term fixed Isa rate rose to 3.72 per cent and stands at its highest point since May 2011 (3.78 per cent) - see the table below for more details.
Savings market analysis – average rates | Mar-21 | Mar-22 | Feb-23 | Mar-23 |
| Average easy access rate | 0.16% | 0.25% | 1.74% | 1.85% |
| Average easy access ISA rate | 0.23% | 0.30% | 1.85% | 2.01% |
| Average notice rate | 0.37% | 0.56% | 2.49% | 2.61% |
| Average notice ISA rate | 0.34% | 0.38% | 2.57% | 2.64% |
| Average one-year fixed rate bond | 0.43% | 0.89% | 3.58% | 3.65% |
| Average longer-term fixed rate bond* | 0.65% | 1.31% | 3.87% | 3.86% |
| Average one-year fixed rate ISA | 0.38% | 0.72% | 3.41% | 3.56% |
| Average longer-term fixed rate ISA* | 0.59% | 1.12% | 3.68% | 3.72% |
Source: Moneyfacts UK Savings Trends Treasury Report
Laura Suter, head of personal finance at AJ Bell, said: “The prospect of even higher tax bills from next month has prompted investors to stash their cash in Isa accounts ahead of the tax year end."
As reported in FTAdviser, chancellor Jeremy Hunt announced his wealth tax raid in 2022. Since then, according to AJ Bell, investors have cranked into action, moving their investments into an Isa to protect them from capital gains and dividend taxes.
Suter said: “The fact the chancellor is cutting the tax-free allowances for both capital gains tax and dividend tax, at the same time as freezing tax bands, means that investors will be clobbered from two sides.
"They’ll pay more tax on their existing gains and investment income, but more investors will also be pushed into a higher tax bracket and so face a higher rate of tax on those investments."
She said it would make sense for advisers with clients who have remaining Isa allowances to transfer as much of their investments as possible into the account.
But, as Suter added: "The clock is ticking, these transactions take time and so the deadline for doing them is always ahead of the tax-year-end deadline, which itself is only two weeks away."
People still need to draw down cash
For advisers whose clients still need cash pots, as evidenced by the Bank of England's recent figures which show an outflow of almost £4bn from interest-bearing sight deposits in January 2023, amid the cost-of-living crisis and rising inflation, there is good news in terms of rates and product choice.
According to the data, product choice overall rose to 1,743 savings deals (including Isas), by the end of March.
The Moneyfacts data also showed that all variable rates (easy access, notice and Isa equivalents) rose for the 13th consecutive month, thanks to competition and back-to-back Bank of England base rate rises.
The prospect of even higher tax bills from next month has prompted investors to stash their cash in Isa accounts ahead of the tax year end.SuterSpringall added: "It is imperative that consumers take time to check any variable rates they have against the top rates, especially as the average easy access rate is 1.60 per cent higher than a year ago.
"There will be accounts out there which have not received the full benefits of base rate rises and it is down to savers to compare and switch.
"Growing choice in the market means it is more important than ever for savers to consider both unfamiliar and household names, as there are now more overall savings deals on the market since October 2022."
simoney.kyriakou@ft.com
