Two in three fail to make the most of tax free savings

With just one month to go before the deadline for ISA investments in the 2008/9 tax year (5th April 2009), two thirds of British savers (66%) will miss out on the opportunity to save tax-free by not using their ISA allowance.

The latest findings from Birmingham Midshires' Saving Britain campaign reveal that less than a quarter (23%) of Britons with savings have used their ISA allowance for this year. However, a further one in ten (11%) savers do plan to move money into a cash ISA before the end of the tax year. The remainder will miss out on tax free savings unless they take advantage of their ISA allowance before 5th April 2009.

The research by Birmingham Midshires asked respondents how the current economic climate had changed their savings behaviour and their attitude towards tax-free saving.

How Saving Behaviour Has Changed in the Last Six Months:

Three fifths (60%) of Britons have changed their saving behaviour in the last six months because of falling interest rates and rising financial uncertainty.

Of those who have changed their behaviour, many say they are saving to create a financial buffer in uncertain times. A sixth (15%) of respondents say they have saved more in the last six months, and more than a tenth (13%) have stopped withdrawing money from their savings altogether.

However, the current economic climate has also eroded British savings, with almost a quarter (23%) of respondents withdrawing more from their savings than they had expected in the last six months, and eight percent saying they had been forced to dip into their tax free savings.

More than a tenth (13%) of savers who changed their behaviour in the last six months have put all of their new savings into instant access accounts so that they can easily access it in case of unexpected costs or loss of income.

Hesitation to Save Tax Free

One in ten savers (12%) say they are not moving money into an ISA before the end of the tax year as low interest rates mean that being tax efficient wont make any difference to their savings. Furthermore, 29% of savers don't feel that they have sufficient savings to make saving in an ISA worthwhile.

However, calculations by Birmingham Midshires show that an average ISA account with a rate of 3.00% would pay £73 in interest over the course of a year. To achieve the same benefit in a regular taxable savings account would require a saver to find a product paying 0.75% more at 3.75%, or 5.00% for higher rate tax payers.

Generation Gains

While younger generations aged 18 to 34 are the most likely to be saving more as a result of the downturn (16%), older people, aged 55 plus, are the most likely to be taking full advantage of their ISA allowance (19% compared with 10% 25 to 34 year olds).