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Brits are missing out on ‘£191bn in tax-free savings’

The number of people saving into a cash ISA is set to fall by 9% this year, according to new data from uSwitch

Many cash ISAs are unable to compete with some high-interest current accounts.

Many cash ISAs are unable to compete with some high-interest current accounts due to low rates. Photo: Gerard Van der Leun

Consumers could be missing out on £191 billion in tax-free savings, with the number of people using individual savings accounts (ISAs) set to fall by 9% this year.

The new study from uSwitch reveals that just 54% of Brits plan to put money into an ISA, which would allow their savings to grow without having to pay the tax on the interest they receive.

The current financial year, which ends on 5 April 2014, gives people a tax-free allowance of £5,760, which they can put into a cash ISA and allow it to accrue interest.

From 6 April 2014, the cash ISA allowance increases to £5,940, but demand is decreasing with one in ten saying the interest rates are not worth it and one in five saying they cannot afford to save into an ISA.

While the base rate has remained at an historic low, but steady – the average cash ISA rate this year has fallen – down to 1.64% from 1.87% this time last year.

High interest current accounts

With current accounts such as Nationwide’s Flex Direct paying 5% AER on savings up to £2,500 and Santander’s 123 account offering 3% AER on savings between £3,000 and £20,000, it’s unsurprising that 43% of consumers are using their current account as their main way of saving.

Many cash ISAs are unable to compete with some high-interest current accounts, even with the added benefit of tax-free interest.

Moreover, the average amount consumers are planning to save into a cash ISA this tax-year has decreased by £121 – down from £3,723 last year, to £3,602 – and less than four in ten (38%) are intending to take full advantage of their allowance of £5,760.

As a result, uSwitch’s report shows that 23 million UK adults are failing to benefit fully from this tax-free allowance, losing out on £191 billion in tax-free savings collectively.

Despite the fact that fewer consumers are saving into a cash ISA, over a third (34%) of consumers recognise it’s important to take advantage of the full allowance.

2014 ISA season’s ‘dismal rates’

As a result, three quarters of Brits are willing to make sacrifices to max out their ISA allowance, with 10% prepared to sacrifice a holiday and a fifth happy to cut out daily luxuries. 

Over a fifth would sacrifice a new car or home improvements in order to save the full amount, but the ISA season has been described as “dismal” by uSwitch personal finance expert, Jafar Hassan.

“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.

“Luckily, current accounts are offering consumers a lifeline. With rates of up to 5%, it’s no surprise that savvy savers are turning their backs on ISAs and putting any money they can into a current account, where it will work much harder for them.”

  • Rob Smart

    By the same logic as used in this headline grabbing article, this year I have missed out on buying a £5 million house, a £1 million yacht and a Ferrari. It appears that the mere fact that I don’t have enough money to buy them doesn’t stop me from missing out on them! Let’s hope that the information in the rest of the article has a bit more validity to it.

  • Richard Overthrow

    Good article. I just had a letter from Santander saying my cash ISA interest will now be 0.5%. All tax free? Whoop. Pee. Doo

  • Richard Overthrow

    I had a letter from Santander this week saying my cash ISA interest rate will drop to 0.5%. All tax free? Whoop. Pee. Doo.

  • M Fryer

    It is disgusting that however little money people have that the government do not legislate and set the minimum rate of interest for Cash ISA accounts. This is typical banking mini pulsation and folly, it leaves people without an opportunity to save efficiently for their future family and retirement. The Government should be ashamed of themselves and should introduce more completion. One single point to make is that the government spent 3% of our GDP to support the 53 billion interest charge on UK debt; so even if they offered savers 2 or 2.5% the saver would benefit and the country as a whole. When will we have anyone who can challenge the status quo?

  • P Sharman

    M Fryer 3 above you got it in one the Banks once again are being allowed to rob us savers blind, the fact is that they do not need savers money as they are getting it cheaper for the government so why pay your savers a decent rate. My thought is that if a savings account can offer shall we say 2.5% the why are ISA rates far less?? Thruth is Banks can do what they like and no one in government give a dam (but then, when they leave Politics who do they go to work for……..oh yes the Banks, conflict if interest comes to mind). The Banks are filling the coffers at our savers expense. Bring on the “Bank of Dave” and lets see a real revolution in the Banking/Savings system………oh what a wonderfull world…. sadly we won’t see this, not in my lifetime??