For years Individual Savings Accounts, ISAs for short, have been the most popular option for savers and investors alike. However, it now appears they are declining in popularity.
Figures released by HMRC show that the number of adults taking out ISAs has fallen to an all-time low with 13 million opened in the 2014/15 tax year; a fall of half a million on the previous tax-year.
The drop comes despite the Government trying to encourage long term saving, by increasing the amount which can be paid into an ISA to £15,240 and making the full allowance available to savers who want to hold a Cash ISA.
Why are ISAs less popular?
Although still popular, after all, 13 million new accounts equates to around 1 in 5 of the UK population taking out an ISA last year, there are a number of reasons why they may be less popular.
Interest rates It may be the case that the effect of rock bottom interest rates mean savers are less inclined to use ISAs and consider other options which they believe will provide a better return.
Perceived benefit It is often the case that even after taking into account the tax which may be paid, the interest rate on a savings account is almost the same as the return from a Cash ISA. Some savers may therefore forgo a small tax benefit in favour of the simplicity of having fewer accounts
Tax changes From April next year all savers will pay less tax on the interest they receive. A basic rate taxpayer will be able to receive £1,000 per year in interest before they start to pay tax; this reduces to £500 for higher rate taxpayers. Given this change, many savers, who will ultimately get no benefit from holding money in a Cash ISA (assuming the rules don’t change) may have elected to give ISAs a miss.
Pensioner Bonds Over the past few months older savers have had the opportunity to put their money into Pensioner Bonds. Whilst these were only on sale for a very limited period of time, the interest rates they paid were massively above those available from Cash ISAs. Some older savers may therefore have chosen to put money in Pensioner Bonds rather than Cash ISAs.
Economic recovery A strong economic recovery often reduces the fear of redundancy, which can make people feel more confident in spending their savings, which would naturally result in less ISAs being opened.
Automatic Enrolment As more people get enrolled into a workplace pension they may feel that they need to save less themselves, which in turn could reduce the number of ISAs being opened.
Are ISAs still a good option?
That all depends on your personal circumstances; however for most people ISAs represent a sensible way of sheltering your money from tax.
Want to know more? We’re here to help.
If you would like to know whether an ISA is the right option for you talk to one of our advisers today.
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