The great cash ISA surge: why savers are rushing to shelter cash from the taxman

Savers flocked to Cash ISAs in huge numbers in the final weeks of the 2024/25 tax year, with a staggering £6.8 billion deposited in March 2025 alone. This figure marks a 104% increase from the £3.3 billion deposited during the same month in 2024, according to Bank of England data. And there was even more deposited in April, which is usually a busy month for ISA providers as it marks the end of the tax year and start of the new tax year. But this year, almost £13 billion was deposited into cash ISAs, over £2 billion more than April 2024.  

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This surge doesn’t appear to be just a reflection of growing interest in tax-free savings but rather fuelled by widespread speculation that Chancellor Rachel Reeves would cut the cash ISA allowance in her Spring Statement on 26th March 2025. While this cut wasn’t announced at that point, the mere rumour was enough to encourage savers to act.  

The notion that the annual ISA allowance, which is currently £20,000, might be reduced, sparked concern among savers and industry stakeholders alike. A number of building societies publicly criticised the potential move, warning that it would undermine the UK’s savings culture, and for providers, it would make it far harder to raise the funds needed for mortgage lending.  

In her Mansion House speech in July, the Chancellor appeared to have addressed these concerns directly, effectively ruling out a reduction in the ISA allowance, at least in the near term. She said “Savings should be encouraged, not penalised. I recognise the importance of ISAs for households looking to build financial resilience. Let me be clear: we will not be reducing the ISA allowance.”  

While this assurance arrived after the end of the tax year, it provided some welcome clarity, at the time, for providers and investors alike. However, ahead of the November Budget, in recent days the speculation is back. According to the Financial Times a “person close to the process said the Treasury was considering a £10,000 annual cash ISA limit, higher than the £5,000 previously suggested by industry figures”.  

Cash ISA popularity grows  

When you review the amount of money that has flowed into cash ISAs over the last few years, it paints a really interesting picture, illustrating savers’ behaviour based on a number of factors including higher interest rates, higher tax and the rumour mill!  

The Bank of England started to increase the base rate from a low of just 0.5% in December 2021, in response to persistent inflation. This caused huge competition between fixed rate bond providers, pushing rates up quickly which was great news for beleaguered savers who had suffered years of rock bottom interest rates.  

Cash ISAs were largely ignored initially however, by both savers and providers, because, as many savers did not have to pay tax on their savings interest as it was still within their Personal Savings Allowance (PSA). The PSA, which was introduced in 2016, allows basic-rate taxpayers to earn up to £1,000 per year in savings interest tax-free (£500 for higher-rate taxpayers). Once you exceed your PSA, every pound of interest earned outside a tax-free account becomes taxable.  

But, as bond rates were rising whilst cash ISA rates were static, for many basic rate taxpayers, they could earn more in a bond after tax, then they could on the tax-free ISA.  

However, as interest rates continued to increase, so too did the need for savers to shelter some of their money into cash ISAs again, to protect their interest from tax. This meant that providers finally turned their attention to cash ISAs, which pushed their rates up too, making them increasingly competitive and popular once again.  

Back when some top rates hovered around 0.5%, a saver needed to deposit around £200,000 to hit the £1,000 PSA limit. But as rates increased, it took far less savings capital to breach that threshold. Today, with top rates paying in the region of 4.5%, just £22,223 would generate that same £1,000.  

Recent surges in cash ISA deposits seem largely due to rumours however, and according to the latest Bank of England figures, there is now £428 billion held in cash ISAs, proving just how popular they are.  

Use it or lose it?  

Whilst we await the outcome of the Budget the good news is that ongoing competition between providers has continued, although it has slowed a little recently. The key will be to keep reviewing your options regularly, as the best-paying accounts could disappear quickly. If rates start to fall, the security and simplicity of a fixed term cash ISA will offer some stability, even if at first glance it looks like they pay a lower interest rate than the equivalent fixed rate bonds. But once you strip tax from the advertised rate, cash ISAs are once again offering better value to those who pay income tax on their normal savings.  

For example, at the time of writing, the top 1-year fixed rate bond is paying 4.55% AER, whilst the top 1-year fixed rate cash ISA is paying 4.27% tax-free/AER. For those who don’t pay tax on their savings, the bond is clearly the winner as it would provide an extra £28 of gross interest for each £10,000 deposited.  

But if you are a taxpayer, you could earn more in the ISA. The rate on the bond would fall to 3.64% after basic rate tax has been deducted, so a basic rate taxpayer with a deposit of £20,000 would earn £854 in the cash ISA, but just £728 from the bond, if they have already used their Personal Savings Allowance.  

It is of course a worry for those with larger sums, that the cash ISA allowance could be cut, especially since the overall ISA allowance has not increased for 8 years – and there is certainly no expectation that it will improve anytime soon.  

The bottom line is that it’s a good idea to make the most of what we have whilst we have it. The more you build up in your cash ISAs, the more you can shelter from the taxman, helping you to make your cash work as hard as you can.  

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate cash or tax advice.