ISA savers 'not using allowance'

18/03/13

By Paulette Flahavin

As the financial year draws to a close, only one in six savers with tax-free Individual Savings Accounts (ISAs), have been able to put away the maximum allowed amount in their pot, a new Halifax survey of its customers reveals.

The UK's largest provider of savings accounts said that only 15 per cent of clients who opened cash ISAs this financial year had managed to put away the maximum £5,640 for 2012/13.

The high cost of living and dormant wages are seen as the culprits behind people's failure to save as much as they would like.

Young people, in particularly, are struggling to save, as evidenced by the average balance of savers between the ages of 25 and 34 standing at £2,712, which is not even half of the maximum cash ISA currently allowed.

The Halifax study carried out at the end of January discovered that savers between the ages of 35 and 44 have a typical balance of £4,389. As savers age, their savings balance grows. The average balance of those 75 and older is £15,035.

When comparing savings levels by regions across England and Wales, people in East Anglia had the highest average savings balance of £9,512.

There is a 16 per cent difference between the highest regional savings level and the lowest, which was found in the North East, where the average balance is £8,220.

While the average savings balance for women was lower than that of men, women save a higher percentage of their earnings than men. The average female savings balance is £8,816, while for male savers it is £8,973. That said, women's cash ISAs equalled 43 per cent of their typical gross earnings, while men's ISAs equalled 26 per cent.

The Bank of England base rate has been at a record low of 0.5 per cent for four years, making the savings environment unrewarding.

Halifax reported that in the 2011/12 tax year, more than a third, or 36 per cent of their clients reached their maximum cash ISA allowance.

"With disposable income continuing to be squeezed, savers are finding it increasingly hard to put money away," Richard Fearon, head of Halifax Savings, said, adding:

"We also believe that the fact that the allowance increases each year means people often aren't aware of the full amount they can invest.

"However, putting what you can in a tax free account should be the first place you save your money."

Also this week the Building Societies Association urged the Government to help savers in next week's Budget by scrapping the tax on interest of any non-ISA savings while the bank rate stayed at record low levels.

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