Record savers rushed to open Isas this April thanks to new rules and top rates

Record numbers of savers rushed to open an Isa in the first two weeks of April this year to make the most of their tax-free allowance and new Isa rules.

There was a 203 per cent jump in the number of Isa accounts opened in the first two weeks of April this year compared with the same period last year, new figures from Skipton Building Society reveal.

The building society also reported a 76 per cent rise in online Isa activity within the first two weeks of April, compared to the same period last year.

The rush comes as savers have been trying ‘more than ever before’ to make the most of high savings rates and their tax-free Isa allowances.

Isa rush! A tidal wave of savers flocked to open Isas in the first two weeks of April, leading to a 200% jump in the number of Isas opened since this time last year

New Isa rules which came into effect from 6 April, allowing savers to spread their Isa limit between as many different types of Isa as they like, also contributed to the uptick in account openings, experts say.

At the start of April this year, the average easy-access Isa paid a rate of 3.38 per cent and the average one-year Isa rate was 4.52 according to rates monitor Moneyfacts Compare.

That’s even higher than the start of April 2023 when the average easy-access Isa paid 2.15 per cent and the average one-year fix paid 3.69 per cent.

> See This is Money’s pick of the five best cash Isas

Rachel Springall, finance expert at Moneyfacts Compare said: ‘Skipton Building Society allows savers to spread their Isa cash across different types, which may be useful for those who want to chase a potentially higher fixed rate, but also need some cash closer to hand.

‘A rise in account openings with Skipton BS this year could be attributed to a couple of factors: One, Isa rates are higher this year as are other savings rates, so there is more desire for them. Two, higher rates can mean savers with substantial pots could breach their personal savings allowance, thus Isas become a more popular choice to protect cash from tax.’

With interest rates rising by so much over the last two years, many more savers will have found they are paying tax on the interest they earn on their savings, as they are using up their personal savings allowance with smaller deposits.

When rates were low this didn’t matter so much, as the PSA protected many from tax on their interest – though the £1,000 allowance is halved for higher rate taxpayers and eradicated for additional rate taxpayers.

But now with the best easy-access savings accounts paying 5 per cent or more, a basic rate taxpayer with £20,000 saved would start losing interest to tax.

The best easy-access account on the market currently pays 5.02 per cent and is offered by Oxbury Bank.

Someone putting £20,000 in this easy-access account would earn £1,004 of interest in a year, so even a basic rate taxpayer would exceed their £1,000 annual tax-free savings allowance with a £20,000 deposit, while a higher-rate taxpayer (someone earning £50,271 to £125,140 a year) would easily exceed their lower allowance of £500.

On £1,004 of annual interest, a higher rate taxpayer gets the first £500 tax free, but will be taxed at 40 per cent on the remaining £504, which means they would end up with £802.4 after tax.

Savings tax has a chilling effect on the best easy-access accounts. It turns the shiny rate on Oxbury’s best-buy easy-access account to 4.02 per cent if you are a basic rate tax payer and 3.01 per cent if you are a higher rate tax payer.

Springall said: ‘Those looking to invest for longer will still find the top fixed Isas are paying less than their fixed-rate bond counterparts, but fixed bond rates are higher than this time a year ago, so those who invest could end up breaching their PSA.’

Anna Bowes, co-founder of Savings Champion added: ‘The humble Isa is back. Isas had spent years in the doldrums after the PSA was introduced in April 2016, which meant that many savers would no longer pay tax on their savings and therefore did not need to make use of an Isa.

‘However, with rising interest rates, savers need to shelter more of their cash in Isas in order to avoid paying more tax than they need to. And the interest rates on Isas have become far better once again, with the increase in competition between providers.

‘If you do want to shelter your cash from the taxman, it makes sense to open your cash Isa as soon as possible in the tax year, so that you can start earning tax free interest for longer so it’s good to see this jump in the number of people utilising their Isa allowance sooner rather than later.’