Savers poured £3.1bn into cash ISAs in May as households rushed to make the most of tax-free savings before the government cuts the annual allowance, the latest figures show.
The Bank of England data follows an even larger £12bn surge in April, when savers traditionally maximise their ISA allowances before the end of the tax year, suggesting many are bringing forward contributions ahead of changes due next year.
The figures also show savers moved money into higher-paying accounts, with deposits into fixed-rate savings products rising by £1.3bn during May while £2bn was withdrawn from easy-access accounts.
Under reforms announced by Labour, the annual cash ISA allowance for people aged 18 to 64 will fall from £20,000 to £12,000 from 6 April 2027 in an effort to encourage more people to invest in stocks and shares.
However, the latest figures suggest the policy may be having the opposite effect in the short term.
Sarah Coles, head of personal finance at AJ Bell, said the rush into cash ISAs “lays bare the unintended consequences” of the planned reforms.
“The dash for cash ISAs in May, on the back of a £12bn boost in April, shows people are filling their boots while they can,” she said.
“For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the government would have been hoping for.”
She said cash remained essential for emergency savings and planned spending, but argued that people with money they could afford to invest should consider stocks and shares ISAs, which have historically offered better long-term returns than cash despite short-term market volatility.
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The changes to cash ISAs are part of a wider overhaul of savings taxation. From next April, the government will also introduce a 22 per cent tax on interest earned on uninvested cash held within Stocks and Shares ISAs.
Craig Rickman, personal finance expert at interactive investor, cautioned that it was too early to judge whether the reforms would achieve ministers’ aim of creating a stronger investing culture.
“It seems unlikely that applying a tax charge and slashing the cash ISA limit will prove the silver bullet,” he said.
“There is a real possibility that many under-65s will stick with what they know and put savings above the new £12,000 cash ISA allowance into taxable accounts rather than take the investing plunge.”
Andy Wood, a tax expert at Tax Barrister UK, said the latest Bank of England figures suggested many savers were acting before the new rules come into force.
The Bank’s Money and Credit statistics also showed that total deposits at banks and building societies increased by £5.4bn during May, reflecting continued strong household saving despite expectations that interest rates will gradually fall.