Savers waste £100million of tax-free savings by not using their ISA allowance

09 March 2009 / by Rachael Stiles
Yet another cut in the base rate by the Bank of England last week will put added pressure on savers who rely on their investments for income, and will do nothing to encourage the 23 per cent of Brits who already do not save anything.

Research from Nationwide has revealed that British savers are paying £100million in tax which they could be saving, just by taking advantage of an ISA instead of putting their money in a standard savings account.

As interest rates have fallen, people have been deterred from choosing Cash ISAs, often thinking that it is not worth the bother, which has made the 2008/2009 tax year quite a lucrative one for the taxman.

But even though ISA rates might not be the most competitive they have ever been, experts have been urging consumers to put what they can into an ISA so that it is at least exempt from tax.

"Given the current economic conditions, setting money aside has never been more important" said Nationwide, and it "encourages all savers to make the most of their tax-efficient allowance before the end of the tax year" on April 5.

Only a third of UK adults have a Cash ISA, Nationwide revealed, and 23 per cent of the population have no savings whatsoever.

The study found that of the third of British adults that do currently have a Cash ISA, many do not top it up each year, so they are missing out on valuable tax-free savings.

Nationwide estimates that Cash ISA holders fall about £12billion short of the total amount that could be invested in their ISAs, which could have accumulated approximately £100million in interest that will have been paid to the taxman instead of going in their pockets.

Andy McQueen, director of Nationwide savings accounts and mortgages, said: "The end of the current tax year is fast approaching which means there's not much time left for consumers to make use of their ISA allowance.

If appropriate, one way consumers can make good use of the ISA allowance is to take advantage of the fixed rate ISA products available."

"We understand that, as household finances are stretched, saving can be a challenge but it's never been more important to build up savings to act as a buffer in uncertain times."

© Fair Investment Company Ltd