The amount of new money saved in cash ISAs has dropped by a third in the past year, with almost £20 billion less saved in the 2016/17 tax year compared with the previous 12 months.
Official statistics released today by HM Revenue & Customs show the total saved fell from £58.7 billion between April 2015 and April 2016 to £39.2 billion the following year, while 1.6 million fewer cash ISAs were opened.
The drop in the amount saved in cash ISAs – essentially savings accounts where you never pay tax on the interest – follows the introduction in April 2016 of the personal savings allowance. This lets basic-rate taxpayers earn £1,000 in savings interest outside an ISA before paying any tax, and higher-rate payers earn £500. For more on this see our Personal Savings Allowance guide.
Cash ISA rates have also been consistently lower than savings rates over the past year. The current best-buy easy-access ISA pays just 1.06% AER interest compared with 1.25% AER for the top easy-access savings account.
HMRC's figures also show that the total amount held in stocks & shares ISAs – £315 billion – has overtaken the total in cash ISAs – £270 billion.
Where can I get the best rate on my savings?
If you want to save in a cash ISA, you can currently earn 1.06% AER variable interest if you want easy access to your cash, or 1.3% AER fixed for a year, with Virgin Money.
In comparison, you can earn up to 1.25% AER variable with the top easy-access savings account from Ulster Bank, or up to 1.95% AER via a one-year fixed savings account with Atom Bank, so these may be a better option if you haven't used up your personal savings allowance.
Alternatively, it's possible to earn up to 5% interest on small amounts, via a current account or regular saver linked to a current account.