ISAs are not flavour of the month with savers
ISAs are always touted as A Very Good Thing, but not everyone takes advantage of tax-free saving. In recent years, banks have come under fire for effectively taking the tax savings for themselves by offering low cash ISA savings rates, but the latest rumour is that ISA allowances will be slashed in the Budget next month, as it is only the wealthy that can afford to take full advantage of the tax advantage.
New figures from uSwitch.com show that, if anything, the general sentiment towards cash ISAs is getting even worse. Last year, 63% of those surveyed said they would invest something in a cash ISA, a figure which has dropped to just 54% this year. Almost 20% of people say this is because they can’t afford it, while 11% cited pitiful interest rates as their biggest deterrent.
And rates really are rubbish. While the Bank of England base rate has remained static at 0.5%, ISA savings rates have fallen from an average of 1.87% last year to just 1.64% this year. With some current account products offering 3% interest (Santander) or even up to 5% interest (Nationwide) on balances, who can blame 43% people for preferring their current account?
The average amount consumers are planning to save into a cash ISA this tax-year has also fallen- down £121 from £3,723 last year, to £3,602, and less than four in ten (38%) are intending to take full advantage of their annual allowance of £5,760. But savers do think it is important to try and maximise ISA savings- 75% of respondents said they were willing to make some sacrifices to use as much of their ISA allowance as possible, with 10% prepared to sacrifice a holiday and a fifth (19%) happy to cut out daily luxuries. Twenty-two per cent would sacrifice a new car or home improvements in order to save the full amount.
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… Unfortunately we haven’t seen the usual battle between banks and building societies to offer the best rates and lure savers, and as we near the end of February far fewer new cash ISA savings accounts have been launched compared to previous years.”
So are you planning on topping up your nest egg, or will you keep your cash close to your chest in your current account? Assuming you have any cash, that is.