One in three ignoring ISAs
More than a third of people in the UK have not taken advantage of ISAs, according to a new poll.
With just two months to go until the end of the tax year, the research by Moneysupermarket also found that almost one in 10 will not bother using their cash ISA allowance despite the draw of a tax-free interest on savings.
According to the poll, 11% of people cited confusion about how ISAs work for their reason for not investing, while 17% said they cannot afford to save at the moment.
This year's cash ISA allowance is £5,640, and savers have until 5 April to invest that amount. Next year's cash ISA allowance will increase to £5,760.
Kevin Mountford, head of banking at the financial comparison site, says: "People who are in a position to be able to save at the moment need to do everything in their power to maximise their saving pots.
"Historically, we have witnessed some savers waiting until the end of the tax year for potential last-minute rates form providers, but this means they could miss out on additional interest on savings in the meantime."
He urges savers to move money from old savings accounts into ISAs to shield any interest earned from the taxman.
The poll also found 38% of people have used their allowance this year, but Mountford urged them to check if their account has a bonus rate about to expire and to shop around to make sure they get the best rate.
Moneysupermarket says the top five cash ISAs are currently offering an average rate of 2.4%.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.