British savers are not taking advantage of a collective GBP191bn in tax-free savings by not investing in cash ISAs, with saving falling by 9% this year, according to figure released on Tuesday by independent price comparison and switching service uSwitch.com.
The company said only 54% of UK savers plan to put money into a cash ISA this tax year, compared to 63% in 2013. The average amount saved has dropped by GBP121 down to GBP3,602, from GBP3,723 in 2012, with just 38% of ISA savers planning to use their full ISA allowance of GBP5,760. uSwitch.com data also shows that less than four in ten savers are planning to increase their contributions to match next year’s new ISA limit of GBP5,940.
One in five Britons cannot afford to save in a cash ISA, while 11% feel its not worth putting money aside because of low interest rates. More than four in ten people in the UK are said to be using their current account as their main way of saving.
Although the base rate has been sustained at a historic low, the average cash ISA rate has dropped to 1.64% this year, compared to 1.87% a year ago. The low rates have resulted in consumers being put off from investing in an ISA, with 43% using their current account as their main way of saving. uSwitch.com reported that Nationwide’s Flex Direct Account pays 5% AER on savings, while Santander’s 1 2 3 Current Account offers up to 3% AER as well as 1% cashback on household bills paid by direct debit.
However, more than a third of British consumers recognise the importance of taking advantage of the full tax allowance and 75% are making sacrifices to get the most out their ISA allowance. In order to save the full amount, 10% of cash ISA savers are forfeiting a holiday and 19% are cutting out daily luxuries, while 22% going without a new car or home improvements.
Despite an 8% fall in savers switching their ISAs, said to be as a result of banks make it increasingly difficult to transfer money, 64% of consumers said they would shop around for the best rates in order to maximise their savings, with 62% switching at least once to get a better rate.
Jafar Hassan, personal finance expert at uSwitch.com, commented:
“Although it’s been a slow start to the 2014 ISA season, better rates may emerge in the coming weeks and it’s important that consumers shop around to find the right ISA or savings plan to suit their needs. At a time when households are struggling more than ever to make their money go further, making their savings work as hard as possible is crucial.”