Spike in Cash ISA savings, reaching £70 billion, due to competitive interest rates. However, concerns emerge over potential loss of such competitive offers.
In a significant shift for the UK's savings landscape, cash ISA subscriptions grew by an impressive 67% in the 2023/24 tax year, reaching a total of £69.5 billion. This marks the highest number of subscribers in eight years, with over 9.9 million people opting for cash ISAs.
The surge in cash ISA subscriptions can be attributed to the higher Bank of England base rate, which pushed up the interest rates on offer for cash ISAs. This trend was more pronounced than the growth in money invested in stock and shares ISAs, which rose by 11% in the same period, totalling £31.1 billion.
The Moneyfacts average savings rate reflected this trend, rising from 3.8% in September 2023 to 4.29% in the same month the following year. However, the Bank of England's recent base rate cut last month to 4% has resulted in a cascade of savings rate cuts, with the Moneyfacts average savings rate falling to 3.46% in September 2024.
The future of the cash ISA allowance remains uncertain, with rumors of a review in the upcoming Budget. Despite this, there are no confirmed plans or active discussions publicly announced regarding a reduction of the Cash ISA limit during the current legislative period.
The growth in cash ISA subscriptions has made these savings products more appealing, offering returns not seen for over a decade. However, it's important to note that inflation, currently at 3.8%, nearly double the Bank of England's 2% target, erodes the value of cash left sitting over time.
For basic rate taxpayers who edge up into the higher-rate tax bracket at 40%, the Personal Savings Allowance (PSA) will be halved from £1,000 to £500. This means that more interest income will be subject to tax.
Investments, on the other hand, stand a better chance of beating inflation and growing wealth in real terms. ISAs will still be sought after by savers looking to protect their pot from tax. The chancellor's plans to cut the Cash ISA allowance have been put on 'pause', but reform of ISAs is not off-the-table for the remainder of this parliament.
Several alumni of the Resolution Foundation, a think tank which has previously advocated capping ISAs to £100k per person, are now in influential positions in the government. Their views may influence the future of ISAs, so savers should keep a close eye on developments in this area.
