Consumers failing to take full advantage of ISA tax break

Most consumers are failing to take advantage of their annual ISA allowance, according to research from Nationwide Building Society. With less than one week to go before the end of the tax year, many consumers are therefore failing to make full use of this unique tax break.

From a UK-wide survey, 27% said they did not save anything at all, while of those who do save, only 56% are using cash ISAs.  And despite the current tax year set to become the best performing year for stocks and shares ISA returns since ISAs were launched in 1999, knowledge about them is low.  30% of consumers either do not know what a stocks and shares ISA is or do not know how to invest in one.

A better understanding of ISAs could help consumers make more of their annual ISA allowance.  Despite 85% of participants confirming that they know what an ISA is, many either admitted to not knowing their full allowance, or mistakenly only stated their cash ISA allowance.  When it came to stating the correct amount for this tax year, just 17% of over 50s knew their full allowance is £10,200 and 15% of under 50s knew their full allowance is £7,200.

Next tax year, the increased annual ISA allowance limit of £10,200 will be available to all, giving consumers a bigger tax break opportunity on their savings and investments.  Of the new £10,200 annual ISA allowance, up to £5,100 of this can be invested in a cash ISA and the remaining amount in a stocks and shares ISA.  Alternatively, up to the full annual allowance can be invested in a stocks and shares ISA.

As one of the largest ISA providers in the UK, Nationwide offers a comprehensive range of ISAs.  For cash ISAs, this includes a market leading four-year Fixed Rate ISA paying 4.25% gross p.a./AER* (annual interest) and Champion ISA, which tracks the average of the top five paying branch-based cash ISAs from a basket of eight key competitors and uses this at its core rate.  A fixed bonus until 30 June 2011 is then added on top of Champion ISA's core rate for balances of £1,000 or more.  For the stocks and shares ISA, Nationwide offers a range of funds provided through Legal & General that have different features such as their risk factors, assets in which they invest and fund management style.  The range of funds available through Legal and General include those managed by leading investment fund managers such as BlackRock, M & G, Invesco Perpetual and Schroders.

Andy Hutchinson, Nationwide's head of savings, said: "Our new research has provided us with a better understanding of the savings habits of savers around the UK and, in particular, how people are using their ISA allowance.  There are very few opportunities in life to ‘beat the tax system' but saving or investing in an ISA allows you to do just that, which is why I believe every adult in the UK should consider having one.  Unfortunately, our research shows that many consumers are not using an ISA of any kind and therefore losing out on the tax-efficient benefits ISAs offer.

"If you are interested in taking advantage of this year's ISA allowance, I encourage you to do so as soon as possible to avoid disappointment.   Our employees across our branches are ready to help and guide you through our range of tax efficient solutions."

It is possible to open a Nationwide branch-based cash ISA up until the close of business on Saturday 3 April 2010.