Savers move away from ISAs and miss out on tax free savings

Savers losing out on tax free benefits by not investing their ISA allowance, according to a recent poll of over 1,200 moneysupermarket.com users.

The research found that almost two fifths of respondents (37%) are planning not to use their ISA allowance for 2009/2010. Of those, just over half (51%) said they simply couldn’t afford to save, but a further 24% said they didn’t understand ISAs so they avoid them. The remaining 26% said they couldn’t be bothered to save at all.

On the flip side however, 50% savers have already invested their allowance for this tax year, with 70% of those opting to invest in cash ISAs only, and 19% opting for stocks and shares ISAs. The remaining 11% have split their allowance between cash and stocks and shares.

Kevin Mountford, head of banking at moneysupermarket.com said:

“If you are a UK taxpayer, it makes total sense to utilise your tax allowance so you can make your savings work harder for you. If you are a higher rate tax payer then it is even more important, and with the new 50 per cent tax bracket coming into force from 6 April, there will be many consumers who will be looking to review their finances to protect against taxation. The ISA allowance for under 50s is increasing to £5,100 from 6 April giving a greater incentive for tax paying savers.

“Savers are quite rightly feeling a little hard done by at the moment but ensuring you’re getting the best return on your money is more important than ever in a low-rate environment. ISAs offer a valuable tax-break helps those that are already putting cash aside to save even more. Consumers that can afford to save should be looking at ISAs, no question. Even though rates are low, the benefits of a tax-efficient wrapper should not be overlooked. Savers who have funds in older ISA accounts should remember that in most cases they are able to transfer these funds to their new ISA without losing the tax free status. With many older ISA accounts now paying a pittance it is important to transfer your funds to make the most of this pot.”