Savers missing out on millons of tax free interest

More than nine out of ten UK adults are not using their full tax-free savings allowance, according to new research from Lloyds TSB Savings.

The findings reveal that just eight per cent of Britons are taking advantage of both Cash and Stocks-and-Shares ISA options, with almost half (46 per cent) admitting they don’t have any type of ISA product.

Existing ISA holders could also be missing out on the best savings rates, as two-thirds admit they do not shop around for better deals. A mere 13 per cent of savers have actually switched ISA providers, despite the fact one in four consumers acknowledge they could get a better rate elsewhere. Over a quarter (26 per cent) admit they simply cannot be bothered to switch providers.

Liz Hogbin, savings and investments director, Lloyds TSB, commented: “Sometimes shopping around can really be worthwhile and by resting on their laurels many ISA savers are actually losing out on easy money. For instance, the average interest rate on an ISA balance of £9,000 is 5.36 per cent, but by switching to an account offering 6.5 per cent you could earn over 20% more interest tax free for very little effort.”

Over a quarter (27 per cent) of savers questioned did not realise it was possible to switch ISA providers and one in six thought it was only an option at the end of the tax year. Many are misinformed about the ISA transfer market, with one in four believing they would be charged an exit penalty to change providers and one in six not realising they could transfer their full balance.

According to the findings, it’s not a lack of funds causing consumers to forgo their tax efficient savings. One in three non-ISA holders questioned by the bank admit they have at least £1000 worth of funds available to them, with one in ten revealing they

have more than the annual maximum contribution of £7,000 stashed in other accounts. One in six current ISA holders admits they don’t save the maximum amount, despite having the funds available to them.

Lloyds TSB has joined forces with independent financial expert Alvin Hall to encourage Britons to take full advantage of their tax-free allowance before the current tax year end on April 6th 2008.

Independent financial expert, Alvin, Hall comments: “If you’ve got the funds to invest in an ISA and you’re not doing it, it’s like throwing away free money. With the tax year end approaching, now is the time to use it or face losing the tax-free benefits altogether. The changes to ISA regulations this year mean there’s even more opportunity to save tax free.”

For more information about the changes to ISA regulations for 2008/09 and top tips on savings, Alvin Hall has written an independent Guide to Understanding ISAs, available at lloydstsb.com/savings from Wednesday 27th February 2008.

The new Lloyds TSB Fixed Rate Cash ISA is designed to encourage savers to make use of their maximum tax free allowance.

The Fixed Rate Cash ISA offers a highly competitive interest rate of up to 6.50 per cent but, this rate can boosted to up to eight per cent if savers also invest an equal or greater amount in a Scottish Widows Investment ISA.