Higher-rate taxpayers earning over £50,271 could be an average of £138 better off by moving their savings into fixed-rate ISAs, according to new research from Moneyfactscompare. The analysis reveals that average fixed ISA rates have now overtaken standard savings bonds, a market shift driven by upcoming changes to ISA rules confirmed by the Labour government.
Market shift ahead of 2027 ISA rule changes
The changes, originally announced by former Chancellor Rachel Reeves, will come into effect from the 2027/28 tax year. From 6 April 2027, savers will no longer be able to transfer funds from stocks and shares ISAs or Innovative Finance ISAs into cash ISAs, including easy access ISAs. The under-65 cash ISA allowance will also be reduced to £12,000.
Prime Minister Andy Burnham and Chancellor John Healey are set to push through these alterations, which were first confirmed by Ms Reeves. The adjustments are part of a broader government strategy to reshape the savings landscape.
Fixed ISA rates now lead the market
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." She added that historically savers have faced a trade-off between competitive rates and tax-free interest, but this shift could mean that compromise is no longer necessary.
For a saver with £20,000, the average one-year ISA rate would generate around £848 in interest over a year, compared with £846 in a non-ISA account. While the £2 difference may appear 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 roughly £708 from the non-ISA after tax.
Who qualifies as a higher-rate taxpayer?
A higher-rate taxpayer in England, Wales, and Northern Ireland pays a 40% income tax rate on taxable earnings between £50,271 and £125,140. These savers are particularly affected by the tax implications of interest earned outside an ISA.
Ms Eastell noted: "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." She added that this could be a valuable opportunity for savers who can afford to leave their money untouched, allowing them to secure a competitive return and protect against any future falls in savings rates.
