Savers are still not putting ISAs first
31 March 2013
New research from Lloyds TSB has found that consumers are still not using ISAs as their first stop for savings.
When savers were asked where they would save £5,000, less than half (47%) would opt for an ISA first, compared with almost a sixth (15%) who would opt for a standard savings account.
For those with a lump sum of £1,000, the number of people turning to ISAs dropped to less than two fifths (37%) with a quarter (26%) still saying they would save it in to a standard savings account.
However, less than a fifth (18%) said if they had £100 they would save it in to an ISA where as three fifths (62%) would put their £100 in a standard savings account.
Choosing a savings account
There are clear motivations driving these decisions. When saving just £100, having easy access (58%), being able to pay in to the account regularly (32%) and online access (30%) are the most important factors.
However when saving a larger amount, the interest rate is most important (32% for £1,000 and 42% for £5,000) followed by the tax free element (30% for £1,000, 39% for £5,000).
A little ISA and often soon adds up
When it comes to ISA savings habits, a third (34%) say they mainly pay money in whenever they can and the amount varies, whilst a fifth (20%) tend to put a lump sum in to their ISA at the start of the tax year.
Just over a tenth (12%) say they started paying money in to their ISA regularly at the start of the tax year but have been unable to continue doing so. A further tenth (10%) save a fixed amount on a regular basis, whilst 9% save on a regular basis but the amount varies.
For savers without an ISA, half (50%) say they don’t have enough savings to consider opening an ISA worthwhile, with a further fifth (22%) saying they still don’t fully understand how ISAs work.
Some way from the ISA allowance limit
With the research indicating that the average ISA balance is £1,772.60, many savers have some way to go to reach the annual ISA allowance limit of £5,640 for the 2012/2013 tax year. Just a sixth (17%) say they have definitely reached the limit, with a further 5% thinking they have already reached the limit. Worryingly 7% are still unaware there is an ISA allowance.
Of those yet to reach their ISA limit for this tax year, just 7% think they will save the maximum amount of £5,640.
Savers should set goals
Almost three fifths (57%) have specific aims or plans for their ISA savings. Those with specific goals for their savings are likely to have a balance of £1664.40, whilst savers without a plan for their ISAs are likely to have a balance of £1,345.70.
A quarter (26%) are saving for a rainy day whilst a sixth (17%) are saving for their retirement and a tenth (10%) are saving for a holiday.
Almost two thirds of savers (64%) say they haven’t withdrawn any money from their ISA during the last tax year. Savers who have raided their accounts have withdrawn an average £542.70 from their ISAs during the last tax year. For those saving for a specific goal, the amount raided increases to £737.70, presumably once they have reached their goal. However, those saving without a specific goal in mind still withdrew £256.80.
Andy Bickers, director of savings at Lloyds TSB comments:
“ISAs should absolutely be the number one priority for all savers, whether they have a larger sum or even if they only have £1 to save. Adding little and often will soon build up over time and it’s even more important that these savers with smaller pots turn to their tax free allowance first to make the most of their savings.”