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The number of cash Isas on the market reached an all-time high in January as consumers flocked to the products to benefit from high savings rates and tax-free interest payments.
Savers have more choice than ever, according to financial data provider Moneyfacts, with a total of 582 cash Isa products on offer last month, up 16 per cent from January 2024 and more than double the total of a decade ago.
The record level of cash Isas on the market comes with the product’s long-term future under scrutiny after City firms lobbied the government last month to curb tax reliefs on the accounts, in order to spur investment in UK stocks.
Providers have increased their offerings significantly over the past 10 years — the average cash Isa provider offered six products in January, up from just over three in 2015.
The findings reflect “the fact that lots more people are using Isas to avoid tax bills on their savings interest”, said Laura Suter, director of personal finance at retail platform AJ Bell.
Savings providers scrambled to offer new cash Isa products after the Bank of England embarked on a series of policy rate rises in 2021 to tackle soaring inflation. The BoE’s policy rate breached the 5 per cent mark in December 2023 for the first time since the global financial crisis, allowing consumers to benefit from higher rates on savings products, which follow base rates.
But City firms have argued that the £300bn held in the products could generate better returns for consumers if invested in the stock market.
A group of financial services companies, including the London Stock Exchange and insurance group Phoenix, urged chancellor Rachel Reeves last month to curb tax breaks on cash Isas, adding that disincentivising them in favour of stocks and shares could support the UK’s languishing equities market. Investment banks earn fees by helping companies sell shares to investors and asset managers have in recent years suffered outflows from their UK equity funds.
Andy Briggs, chief executive of Phoenix, who attended the meeting, told the Financial Times: “The state should not be giving a tax break for us all to park our money in cash.”
Nevertheless, the products remain hugely popular among consumers and cash Isas “are now the top-paying accounts in the easy-access market”, said AJ Bell’s Suter.
The three top-paying no-notice cash Isas offered annual equivalent rates between 5 and 5.05 per cent, according to Moneyfacts’ Best Buys list for Tuesday. The top easy-access savings accounts, by comparison, offered rates between 4.66 and 4.75 per cent.
National Savings & Investments, the UK’s state-owned savings bank, increased the interest rate on its direct Isa from 3 per cent to 3.5 per cent on Tuesday, a change Suter attributed to “red hot” competition in the Isa market.
Some 14mn of the UK’s 22mn Isa holders hold cash Isas alone, according to analysis of the latest HM Revenue & Customs’ data by AJ Bell. The remainder hold stocks-and-shares Isas.
