According to new research from Barclays, thousands of consumers will miss out from the benefits of cash ISAs this tax year, failing to take advantage of high interest rates offering up to seven times more than the current Bank of England base rate.
Surveys show that 56% of savers will leave more than £4,000 sitting in an instant access savings account
/and or current account instead of making the most of their tax free savings allowance.
The research monitored consumers intentions to add funds to ISAs over the current and new tax year and compared these figures against their current level of savings. It revealed:
- 71% of those that took part do not think they can afford to invest, despite having funds in other types of savings accounts such as fixed rate bonds or instant access savings accounts.
- 13% were not informed enough about ISA benefits
- 11% were under the impression that all ISAs were fixed, effectively tying their money up
- 46% had never had an ISA
- When asked, the average amount of time savings remained in an instant access account was 4 years
However, 37% of those that have or intend to open an ISA in the current tax year, have already opened an account, and a further 7% are planning to open. The average amount of cash they have or intend pay into an ISA is approximately £2,500. The most popular reasons given when asked why they planned to invest into ISAs, with 77%, was that people want to make the most of their tax free allowances, while 39% argued that they pay a better rate of interest than their other bank accounts
. In regards to the new tax year – beginning 6 April, just under a third of people have said they will be opening one.
Head of savings at Which4U – Sam Gooch, said: "It's concerning to find that so many people do not have the knowledge and understanding around ISAs and will fail to benefit from their tax free savings allowance. They might be surprised to learn that there are several ISAs offering the same levels of flexibility as instant access savings accounts, paying around 2.75% with no withdrawal penalties, so they can access their savings as and when required. Making the most of your ISA allowance is strongly recommended, especially as the amount that can be invested each year has increased for all savers aged 50+, and this will apply to everyone else in the new tax year."
Regional figures have shown that savers in Yorkshire are the most likely to miss out, with 61% of consumers not intending to open an ISA despite having savings in excess of £4,800 in an instant savings or current account, while 8 out of 10 said they can't afford to do so.
To make the most of your ISA allowance and earn the highest rates available on today's market, you should consider fixed rate ISAs
. Fixing the rate also fixes the investment period, so you will have to leave your ISA until it matures. If this seems like a plausible option, you could earn up to seven times higher that base rate, with the RBS ISA
paying 4% for a 3 year fixed period, with the opportunity to transfer previous years ISAs across.
Written by Sam Gooch