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Is Britain saving enough?

31st March 2014 Print

Almost two thirds (63%) of Brits still haven’t used their ISA allowance this tax year, according to research by the TSB. Just 15% of people have used their full 2013/14 ISA allowance, with only a fifth (22%) investing a partial amount.  With average balances standing at £1,211, this falls £4,549 short of this year’s cash ISA allowance of £5,760.
 
Topping up tax free savings
 
AcrossBritain, this shortfall in ISA balances equates to over £200 billion which could be being used to make the most of tax-free saving.

For example, taking the average ISA rate of 1.64%, British savers could earn more than £3.5 billion in interest this tax year alone by saving the maximum.

Compare this to an average savings account where a basic rate tax payer would forfeit 20 per cent of their interest to the tax man, and Britain could be £717million better off by using an ISA and banking the tax free interest.
 
Max up or miss out
 
It could be because people think there’s no point with one in five saying they’re put off from saving because rates are perceived to be too low.  However, not using up the full ISA allowance this year will also impact the interest people can earn in future tax years.  With research showing that people keep their ISA for an average seven years, using the full allowance across every year in the life of their ISA could have helped them build up a balance of £31,440 since 2007, excluding interest.
 
Assuming Brits took advantage of their full annual allowances and received an average interest rate of 1.64% in previous years, not only would it cost them more than £537 in lost interest this year but it could mean they have missed out on more than £1,865 in interest over the life of their ISA. With people unable to top up previous years balances at a later date, making the most of the allowance each year is crucial.
 
Affordability is still an issue...but retirement nest eggs are prioritised
 
Whilst two thirds (63%) of Brits haven’t saved into their ISA due to not having any spare money left at the end of the month, the research does show that nearly half (43%) of those who do save, do so for a long term investment such as their retirement. 
 
Budget boost for ISA savers
 
In last week's Budget it was announced that from July 1, cash and stocks and shares ISAs can be merged to create a single New ISA allowing people to save up to £15,000 tax free. If people saved the maximum limit over the next seven years, they could build a balance of £110,309 generating interest of £7,119. Across Britain that’s £342 billion in interest  which if laid out in £1 coins would stretch around the world 192 times.
 
TSB ISA customers can top up their account at any time, socustomers wanting to take full advantage of the new ISA limit of £15,000 will be able to do so from 1st July.
 
Jonathan Hall, Head of Savings at TSB, says: “Interest rates might be low at the moment, but thinking about the long term health of finances is important.  Taking advantage of tax free savings now should be high on the priority list as it puts more money back into people’s pocket. Even if someone has just a few pounds to save, they should be saving it in an ISA.
 
“We know a healthy economy relies on people saving.  At TSB every penny deposited is only used to help other TSB customers through mortgages and loans.  The more people save; more loans can be made which helps local communities thrive right across Britain.”