A frenzy of saving gripped Britain in March as rumours of a looming crackdown on Cash ISA allowances sparked a rush to shelter money in tax-free accounts,.

Savers poured an astonishing £4.2 billion into ISAs - a surge of 31% compared to the same month last year.

The dash for ISAs was fuelled by speculation ahead of the Spring Statement that the government might slash the generous annual tax-free allowance.

Though the feared cuts never materialised, the mere threat turbocharged a seasonal spike in savings activity.

Laura Suter, director of personal finance at AJ Bell, said: "Rumours that the government was poised to slash Cash ISA allowances in the Spring Statement sparked a rush to the tax-free accounts, with savers putting £4.2 billion in Cash ISAs in March. The money paid into Cash ISAs was 31% higher than March last year, with an extra £1 billion paid in by the British public."

Mark Hicks, head of Active Savings at Hargreaves Lansdown, echoed the trend: "Cash ISAs continued to dominate the savings market in the run up to tax year, attracting another £4.2 billion, as higher rates pushed tax-saving to the top of the to-do list."

But savers eager to make the most of their nest eggs face a fast-moving landscape. Despite top ISA rates remaining relatively high around the end of the tax year, average returns have begun to slip. Data from the Bank of England shows the average easy-access ISA rate dropped to 2% in March, down from a peak of 3.4% last October.

Suter warned: "While the top rates on offer have risen, the average Cash ISA rate has been dropping... It means that cash savers need to be savvy to hunt out the best rates.

"If savers don't shop around they may well be losing out by plumping for an ISA rather than a standard taxable savings account, despite the free ride on tax."

The squeeze comes as financial markets brace for a potential interest rate cut in May. Hicks noted: "As competition heated up over tax year end, the rates on offer remained relatively elevated but this is now starting to change... Fixed rate deals above 4% may not be around by the end of the year."

Despite the current enthusiasm for Cash ISAs, experts caution that many savers could be missing out on bigger long-term gains by avoiding investment alternatives.

"Some of these savers may be unnecessarily sticking to the safety of cash," said Suter.

"Our research shows that savers are paying the price for staying with safe havens... £1,000 saved every year in a Cash ISA since April 1999 would have turned into £34,392. However, if that same £1,000 a year was invested in the average return of the IA Global sector it would have turned the £26,000 investment into £83,603."