Savers are snubbing £191bn in tax-free cash
British consumers are set to miss out on £191 billion in tax-free savings this year as they fail to use cash Isas.
With the deadline for savers to take advantage of their Isa allowance fast approaching, the number of people putting money aside money in tax-free accounts is set to fall by 9% this year.
According to new research from uSwitch only 54% of Brits are planning to put money into an Isa compared to 63% last year, meaning collectively savers are missing out on a total of £191 billion in tax-free cash.
The survey found that 19% of people said they simply couldn't afford to put any cash away for a rainy day, while 11% put their reluctance to use an Isa down to the low interest rates that are being offered.
For those who are saving in an ISA, the average amount being put away is just £3,602 - down by £121 on last year's figures and well short of the maximum you are allowed to save of £5,760, according to MoneySuperMarket.com.
To highlight how important using your allowance is, savvy savers who have taken advantage and maximised their allowance each year since Isas were first introduced would now be almost £5,000 better off than if the money had been invested in an easy-access savings account.
Commenting on the factors that put off Isa savers, Jafar Hassan, personal finance expert at uSwitch.com, said: "This Isa season is yet again proving to be a damp squib, with dismal rates unlikely to spark a fire under savers. Even locking away your money won't give you much to shout about with very few short-term, fixed-rate cash Isas offering more than the tax-free 1.75% savers can earn with easy-access accounts."
He said that the usual battle between banks and building societies to offer the best rates and lure savers has yet to materialise and "far fewer new cash Isa savings accounts have been launched compared to previous years".
"To make matters worse, many of the top deals on both cash ISAs and taxable accounts have disappeared in recent weeks - the Post Office has closed its Premier Cash Isa to new savers and Virgin Money has cut the rate for new savers on its Cash Isa," he said.
If you possibly can put some money aside for a rainy day by the end of the tax year, don't forget the deadline for this year's allowance is 5 April. Go to moneywise.co.uk/best-cash-isa-rates for our guide for the best deals.
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.