Halifax

Tax Free Deposits Take a Hit

30 August 2013

Cash ISA Savings dip further than those in other Instant Access Accounts

Savings balances of instant access Cash ISAs have declined more rapidly than those of other instant access accounts in the last 12 months, according the latest Halifax Savings Barometer.

The quarterly savings review shows the average savings balance in instant access Cash ISAs was a third (33%) higher than in taxable equivalent accounts between August 2012 and April 2013. However, the difference plummeted to just 12% in July even though the average balance in taxable instant access accounts remained consistent over the same period.

At the end of July the average balance of instant access Cash ISA was £4,640 compared to £4,146 in other instant access savings accounts, in stark contrast to August 2012 when the average balance of instant access Cash ISA was £5,749 compared to £4,087 in other instant access savings accounts (See Table 1).

Richard Fearon, Head of Halifax Savings, said:
“It is concerning to see that people are potentially not maximising the opportunity of the tax free status of their savings, with the average tax free balance of instant access Cash ISAs reducing more rapidly than the taxable equivalent.

“Tax free accounts should be the first place people save and the last place to withdraw savings from. While savers continue to get a limited opportunity to protect their savings from tax, with just half the total ISA allowance able to be saved in a Cash ISA each year, savers need to make every effort to maximise the benefit that tax free savings provide.”

ISA efficiency reduces with age
While older savers may have had more opportunity to increase their savings pot, they are not as likely as younger savers to protect their instant access savings from tax. (See Table 2).

The average balance held by 45-54 year olds in instant access Cash ISAs (£4,111) is just 4% greater than the amount they hold in taxable accounts (£3,960), with savers aged 55+ actually holding less in instant access tax free accounts than they do in standard savings.

Although the average tax free balances of 16-17 year olds stands at £3,265, this is almost three times (177%) the average amount that this age group holds in regular instant access accounts (£1,174).

Richard Fearon adds:
“It’s encouraging to see that younger savers are making good use of their tax free allowance. Since the introduction of Junior ISAs (JISA), which mature into Cash ISAs when the child turns 18, younger savers can also get a huge head start on their tax free savings.”

JISA customers who opened the account last year, and take advantage of the annual limit from birth to the age of 18 could have a tax free savings pot of £121,525* when the product matures into an adult Cash ISA.

Those in North have lowest instant access balances
Savers living in the North have the lowest average instant access tax free savings balances at £4,386, and this is also the region with the lowest average balance in other instant access savings accounts (£3,639).

East Anglia is the region where savers have the highest average balances in both instant access tax free savings (£4,903) and in other instant access savings accounts (£4,877). (See Table 3).

Women out-save men in instant access saving stakes
When it comes to instant access savings, women are out-saving men in both Cash ISAs and standard savings accounts.

Over the last 12 months, women have consistently saved more than men. Women also have an average instant access tax free savings balance 7% higher than their male counterparts (£4,809 compared to £4,480) (Table 4).

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