Experts are urging savers to “achieve better returns” from high interest rates by switching ISA accounts.
This call to action comes ahead of the current tax year ending on April 5 with ISA customers only having a couple of weeks left to use their tax-free allowance worth £20,000.
Analysis carried out by Paragon Bank has found the amount of cash held in adult ISA accounts has risen by nearly a fifth in the past year.
This is primarily due to bank and building society customers taking advantage of hiked savings interest rates.
Savers have been able to benefit from the Bank of England’s decision to hike the UK’s base rate at it attempts to ease inflation.
As it stands, the base rate is sitting at 5.25 per cent which has been passed onto savings interest rates.
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Savers are being encouraged to switch ISAs to "achieve better returns"
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However, with the central bank expected to slash rates, many customers are looking to secure high interest accounts before they are removed from the market.
Derek Sprawling, Paragon Bank’ savings director, outlined why bank customers need to take action to make their finances go further.
He explained: “Last year marked the return of the ISA season, with much of that money heading into fixed-rate accounts as savers took advantage of increasing interest rates.
“As savings rates increased across the market, more people became exposed to tax as their returns breached their Personal Savings Allowance.
“One year fixed-rate products were by far the most popular option for savers and the good news is that their product is likely to be maturing into a higher rate environment, meaning they should be able to achieve better returns if they move to a new ISA product.”
According to the latest CACI data, overall adult ISA balances grew by £45billion, or 17 per cent, to £309.3billion by the of 2023.
This rate outpaced the growth of non-ISA balances over the same period, research by Paragon Bank found.
In comparison, non-ISA adult cash accounts increased over the year from £764billion to £801.3billion, which is a five per cent rise.
Bank customers adopting fixed-rate ISAs as their main savings vehicle was the primary contributing factor to the increase in adult cash ISA balances.
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The Bank of England base rate is at a 15-year high of 5.25 per cent GB NEWSOverall, fixed-rate ISA balances rose by 76 per cent, from £89.7billion in December 2022 to £157.9billion at the end that year.
However, the level of cash held in instant access ISAs for adults plummeted from £167.8billion to £145.2billion over that period.
2023 was recognised as being one of the busiest ISA seasons on record with £10.7 billion and £13.4 billion placed in new adult cash ISA accounts in March and April respectively.
New business levels for ISAs being 256 per cent higher in March 2023 than the previous year, with April being 154 per cent higher.