ISAsMar 16 2017

Isa contribution rates plummet

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Isa contribution rates plummet

The number of people saving into an Isa fell by almost a fifth this tax year, as returns on cash failed to match inflation, a survey by True Potential Investor has revealed. 

The survey of 2,000 adults found 41 per cent had not contributed any money to an Isa in the tax year to February. That was up from just 29 per cent at the same time last year.

When asked why they had not contributed to an Isa, respondents most commonly cited poor cash returns. 

True Potential said the £1,000 tax-free personal savings allowance on non-Isa accounts, introduced last year, also put people off contributing to an Isa.

People who did save into an Isa, meanwhile, were likely to have contributed less than the previous year.

Fifteen per cent of respondents said they contributed less than £1,000 into their Isa, 36 per cent contributed less than £6,000, and 9 per cent contributed between £12,001 and the maximum allowance (currently £15,240 a year).

Cash has long been seen as a risk-free return but that’s been turned on its head and is now a return-free risk that only benefits the banks.David Harrison

The vast majority of Isa accounts are in cash (80 per cent) - a fact that prompted True Potential to urge savers not to ignore the much higher returns achievable through stocks and shares Isas.

The firm pointed out that even its most defensive stocks and shares strategy returned 7.9 per cent in the 2016 calendar year, while its most aggressive returned 17.7 per cent.

David Harrison, managing partner at True Potential, said the "Isa season" had been "especially poor value" for consumers on the high street.

"Not a single cash Isa interest rate clears inflation and the effects of that are clear to see in our research with growing public apathy," he said. 

"Cash has long been seen as a risk-free return but that’s been turned on its head and is now a return-free risk that only benefits the banks.

"Even low risk investment Isas have delivered around 10 per cent growth over the last 12 months. Savers are quite right to reject dismal high street cash Isa rates but I encourage them to look again at investment Isas," he said.

Paul Gibson, managing director of Granite Financial Planning, said he was not surprised by the figures.

"Because rates are so low, people are probably taking the view that it's not worth bothering to pay into a cash Isa," he said.

However, he said low cash returns had not affected his own clients' Isa contributions, which he said went almost exclusively into stocks and shares Isas.

james.fernyhough@ft.com