Four savings trends highlighted in the latest Bank of England report

Cash Isas are having a moment in the sun, National Savings & Investments may have to keep pumping up rates and the amount of cash in fixed-rate accounts has ballooned, latest figures from the Bank of England show.

In its Money and Credit report, it reveals a huge net £10.1billion poured into fixed-rate accounts in July, taking this category to a new record high of £244billion.

Meanwhile, more money poured into tax-free cash Isas than ever before in July – with inflows of £3billion.

Piggy trends: There has been a huge move around of cash this year, Bank of England data shows

In contrast, National Savings and Investments has seen outflows of £300million in two months – and despite the glut of new deals, Britons are still hoarding huge sums in current accounts.

Here, This is Money runs the rule over the four savings trends highlighted in the Bank of England report.  

1. Record start to tax year for cash Isas

Cash Isas have seen the largest inflows for the start of the tax year since Isas were launched in 1999.

Savers funnelled more than £3billion into Isas in July – the highest inflows for July since 2014.

In the first three months of this tax year, savers piled more than £9billion into cash Isas – the largest inflow since Isas were launched in 1999, and the first time the balance has been positive since before the pandemic. 

Rachel Springall, from Moneyfacts, says: ‘It is still possible that savers may forgo using their Isa allowance due to the top returns available outside of an Isa wrapper, as many savers will find their earned interest is protected under the Personal Savings Allowance.

‘However, rising interest rates could result in consumers with larger pots breaching their individual allowance, which is why Isas offer considerably more suitable longer-term tax-free benefits.’

The PSA allows basic rate taxpayers to take home up to £1,000 worth of savings interest tax-free each year (£500 for higher rate taxpayers), so it’s worth comparing deals away from ISAs carefully with this in mind.

Read more here: Will you be hit by a tax bill on your savings as rates rise?

2. Fixed-rate boom

Fixed-rate accounts saw inflows of £10.1billion in July, taking the category to a new high of £244billion.

The average interest rate on a new fixed-term deposit account jumped to 4.94 per cent in July – up from 4.29 per cent the previous month.

By contrast, easy-access accounts saw outflows of £10.2billion in July – and that’s despite vastly improving rates there too. 

Inflation and the rising Bank of England base rate has driven a 17-fold increase in the average new fixed-term deposit interest rate in just two years – up from 0.29 per cent in July 2021.

Then, a £10,000 deposit could expect annual interest of about £29. Today, the same deposit could expect annual interest of around £600.

Anna Bowes, of Savings Champion, says: ‘I’m not surprised about the boom in fixed term deposits as rates had recently hit the highest they have been for well over a decade.

Andrew Hagger, of Moneycomms, adds: ‘The 6 per cent plus rates on fixed rate bonds are the most attractive rates seen for many years, so it’s no surprise to see those with spare funds locking in and making hay while the sun shines.

‘With fixed rate bonds many providers offer the option of monthly interest and I’m sure many people on fixed incomes will have taken this option in order to help absorb some of the cost of living pressures.’

3. NS&I inflows struggling

The figures show that despite numerous rate boosts by National Savings and Investments, it is struggling to get more money in than what is heading out.

It has seen £300million of outflows in the past two months. Premium Bonds now have a underlying rate of 4.65 per cent, and just today, it launched new issues of its Guaranteed Growth Bond paying a rate of 6.2 per cent – now the best of any one year fixed rate deals on the market.  

Anna Bowes adds: ‘Today’s new Guaranteed Growth Bond has well and truly put the cat among the pigeons as it is head and shoulders above the next best now, which are paying 6 per cent.’

This has made the account a best buy – an unusual move for NS&I. Experts believe more rate increases are on the cards from the Treasury-backed bank to keep up with higher rates elsewhere, luring people in with guaranteed returns.  

4. Britons still want cash at their fingertips

There is £270billion in accounts gaining no interest at all, including current accounts.

The average household has £8,267 sitting in current accounts, according to analysis by Hargreaves Lansdown – showing that Britons still want quick access to cash, despite far better savings rates.

Experts warn this money would be better placed in an easy-access account paying a market-leading rate, as households can still get hold of money in these accounts when they need it all the while it gains interest.

The best-buy easy-access account pays a rate of 4.94 per cent, meaning that the average household could be over £400 better off if they deposited the money in the best easy-access account.

Rachel Springall says: ‘Savers will be missing out on attractive returns if they leave their cash in an account that pays little to no interest.

‘Convenience may well be the focus regardless of the interest rates on offer, but there is an abundance of easy access accounts that pay enticing rates and still allow flexibility.’

Andrew Hagger adds: ‘You could understand this behaviour when savings rates were at rock bottom and paying 0.1 per cent, but now you can get 4.9 per cent plus on easy access savings, it’s staggering that so much potential interest is going to waste.

‘On £8,267 at 4.9 per cent you would earn £405 per year or £33.75 per month in interest – if people know how much they were missing out on, I’m sure more would take action.

‘As it stands the banks are sitting on great big piles of free cash which does wonders for their bottom line.’

Anna Bowes adds: ‘The amount of cash sitting in current accounts is shocking – just think about how much interest that cash could be earning, even if it were to remain accessible.

‘With the improvement in technology, opening a savings account can be so quick and easy – and the money can be back in your bank account in hours, if not minutes when you actually need it.’

This post first appeared on Dailymail.co.uk