Savers in the UK have a range of options available to them. Among the most appealing of these, for many, is the cash ISA. But exactly what are these products, and why do they generate so much attention?
How popular are ISAs?
In April 2023, around £12 billion was deposited into cash ISAs. This set a new record and confirmed the direction of travel in the industry. According to the UK ISAs Market Report, which surveyed customers on a range of finance-related topics, around 58% of consumers in the UK have a savings account – and 26% of these savers are planning on opening a stocks and shares ISA over the next year.
Government data shows a slight decline in overall ISA uptake since the 2008 financial crisis. Just under twelve million adult ISA accounts existed in 2021 to 2022, which was a slight decrease over the previous year. Recently, the Lifetime ISA has emerged as a popular option – but it still represents only a tiny sliver of the overall picture.
What is an ISA?
An Individual Savings Account is a way of earning interest on your savings without having that interest subject to income tax. The amount of money you can put into your ISA every year is capped at a fixed point, called your allowance. This maximum resets at the end of the financial year in April.
ISAs come in several different categories.
Cash ISA is the default, and functions in much the same way as other kinds of savings accounts. The Stocks and Shares ISA works a little differently. The money is being invested, rather than sitting in an account. As such, its value will shift up and down over time, rather than earning a fixed rate of interest.
The Help to Buy ISA allows would-be homeowners to save, and to have the government top up the savings with a 25% (or £3,000) bonus. These are no longer available to new applicants, but you might instead consider the Lifetime ISA, which works in much the same way, except that you can use it to save for retirement, rather than get on the property ladder.
Why are ISAs popular?
There are a few reasons to prefer an ISA, beyond the basic tax advantages. You’ll get plenty of choice when it comes to account types, and you can easily consolidate your savings into a single location. Your savings will also be protected up to a given amount, thanks to the Financial Services Compensation Scheme.
Before investing, it’s worth taking stock of the available options and picking out an ISA that matches your needs. You might do this with the help of a financial advisor.
