Brits missing out on tax free savings
Cash-strapped Brits are wasting up to £182 billion by not making the most of their cash ISA allowance, according to new research from uSwitch.com. Just half of Brits (50%) intend to save into a cash ISA this year and those who do will be saving far less than the current ISA limit allows.
Those who will be saving tax-free this year intend to put away only £2,784 on average by April - just over half the annual allowance of £5,340. Nearly three in ten (29%) will put in less than £1,000 and just a quarter (25%) will take full advantage of the ISA allowance this year. And things don't look like they will get much better next year - a third (36%) plan to save less than £2,000, even though the ISA allowance will increase to £5,640.
However, over four in ten consumers (42%) say it's important to take advantage of the full cash ISA allowance. As a result, three quarters of Brits (75%) are willing to make sacrifices to max out their ISA allowance, with 7% willing to cut back on household essentials, 16% prepared to sacrifice a holiday and a fifth (22%) happy to cut out daily luxuries. One in ten (12%) would forgo a new car or home improvements in order to save the full cash ISA allowance. However, a quarter (25%) wouldn't sacrifice anything.
As well as financial restraints, over three quarters of Brits (78%) don't have a clue about how much the cash ISA allowance is this year - just a fifth (22%) know they can save up to £5,340 tax-free. More than a third (37%) underestimate how much they can save in a cash ISA - with one in ten (11%) thinking the limit is just £3,600 a year.
And savers are also in the dark when it comes to the interest rate on their ISAs - less than half (49%) know how much interest they are earning this year. More worryingly, almost half (47%) have never switched their ISA to get a better rate.
To make matters worse, as finances continue to be squeezed 15% of those who saved this year will be forced to withdraw money from their ISA in April instead of keeping it invested - a further quarter (25%) don't know if they will be able to keep saving. Of those withdrawing money, more than a quarter (26%) will use it to pay off debts.
Michael Ossei, personal finance expert at uSwitch.com, says: "With household finances being battered by the rising cost of living and frozen pay, savings are often the first casualty. But given the current level of uncertainty, having savings to fall back on is more important than ever. And with rates fairly low, it pays to make the most of your savings by ensuring that they are tax-free.
"For a new generation of ‘need cash now' savers, locking money away for any length of time is a big ask. However, some ISAs are instant-access, meaning you can still get your hands on your cash while benefiting from tax-free savings too. The most important thing to do before taking out any sort of savings product is to shop around for the best deal and to take out an ISA or savings plan that suits your needs. Arming yourself with the right information is the first step in winning a decent return for your hard-earned cash."