Cash ISAs

Cash ISAs See an 87pc Drop in Contributions as Interest Rates Plummet

The latest figures show that contributions to savings accounts – particularly cash ISAs – have plummeted in the past year by a whopping 87pc. In October of 2015, deposits stood at £1.7 billion, compared to this year’s figure of just £221 million.

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Savers are turning their backs on cash ISAs, which were once one of the most popular ways of saving, after interest rates have plummeted. Additional factors have included new rules on taxation and increasingly complex terms and conditions.

Complexity in the Market

Cash ISAs used to be a simple means of saving. Now customers have to deal with a range of different account types, including flexible ISAs, inheritance ISAs, P2P products and Help to Buy ISAs. At the same time, lending institutions have slashed their interest rates to as low as 0.01pc, meaning that many current accounts now actually offer better interest rates than savings products.

Challenging Economic Times

After an ongoing difficult economic period, many customers are also dealing with personal debt, meaning that many simply don’t have enough to save. In fact, companies such as  https://www.carringtondean.com/individual-voluntary-arrangement-iva/ have seen an increase in enquires about debt management products such as IVA schemes, and recent official figures showed that over 16 million Brits have less than £100 in savings.

Plummeting Interest Rates

The nose-dive in savings coincides with the introduction of the new personal savings allowance, which allows basic rate taxpayers to earn up to £1,000 in interest payments annually from standard savings without paying tax on it. This is in addition to interest paid on premium bonds and ISAs. There is a £500 limit for higher-rate tax payers. HMRC said that this new allowance means that 95pc of savers will pay no tax on their interest payments at all.

However, with interest rates at record lows, the appeal of savings accounts seems to be waning. With the Bank of England base rate now having been at a historic low for eight years, it looks as though things will not be changing any time soon. Experts warn that when interest rates do rise again, savers may wish that they had locked away their savings into tax-efficient ISAs rather than lose the benefits for each financial year once interest rates start to rise again.