Savings alert: Bank customers 'lock in strong' £138 boost from ISAs but tax raid looms

Savers are continuing to use ISAs to bolster their finances despite upcoming changes to the tax-free allowance amount

Savers are continuing to use ISAs to bolster their finances despite upcoming changes to the tax-free allowance amount

Savers have earned an extra £138 on average from ISAs ahead of next year's changes to the tax-free allowance, new research from Moneyfactscompare has found.

The financial services comparison site's analysis noted the UK savings market has undergone a notable shift, with average fixed ISA rates now overtaking their non-ISA equivalents for both one-year and longer-term deals, according to new data from Moneyfacts.

Savers currently have access to a record-breaking 2,617 products across the market, including 746 cash ISAs and 1,871 non-ISA options, the latter representing the highest count since records began in February 2007.

Meanwhile, the number of accounts offering returns above Base Rate on a £5,000 balance has climbed to 1,412, a level not reached since July 2012 when the figure stood at 1,428.

The total number of providers in the market has also grown to 159 after a new entrant joined, while ISA providers remain at a record 106.

For example, the average one-year fixed ISA rate has risen to 4.24 per cent, edging past the equivalent non-ISA figure of 4.23 per cent.

Longer-term fixed ISAs have moved even further ahead, reaching 4.27 per cent compared with 4.25 per cent for non-ISA deals.

The one-year non-ISA average is at its strongest since November 2024, when it stood at 4.24 per cent, while longer-term averages for both ISA and non-ISA products have hit their best levels in more than two years, last surpassed in January 2024.

Easy access rates held steady at 2.53 per cent for standard accounts and 2.72 per cent for ISAs, with notice accounts also unchanged at 3.40 per cent though notice ISAs dipped slightly to 3.31 per cent.

However, the £20,000 tax-free allowance attached to ISAs is being reduced from £20,000 to £12,000 from next year, with savings interest accrued facing a 22 per cent levy

Caitlyn Eastell, a personal finance analyst at Moneyfacts, said: "The fixed rate savings market is shifting in favour of ISA savers, with average one-year and long-term ISA rates now moving ahead of their non-ISA counterparts.

"Historically, savers have often faced a trade-off between securing competitive rates outside an ISA or keeping their interest tax-free. However, this shift could mean that this compromise may no longer be necessary."

Ms Eastell noted: "For a saver with £20,000, the average one-year ISA rate would give around £848 in interest over a year, compared with £846 in a non-ISA account.

"While the £2 difference may seem small, for a higher-rate taxpayer with a £500 personal savings allowance, the ISA could leave them around £138 better off, with the full £848 interest kept compared with around £708 from the non-ISA after tax."

Ms Eastell also highlighted the opportunity for those willing to commit their funds for longer periods.

She added: "Fixed-rate savers may be able to lock in some of the strongest returns seen in years, with average long-term ISAs and non-ISA rates hitting their highest levels since January 2024, while the average one-year non-ISA also reached highs not seen since November 2024.

"This could be a valuable opportunity for savers who can afford to leave their money untouched to secure a competitive return and protect themselves against any future falls in savings rates."