Do you know about the new ISA rules? If so, are you taking advantage of them? According to research from Kingston Unity there's still a clear lack of understanding regarding the new rules, but there are also indications that an ISA resurgence could be on the cards…
Kingston's chief executive Andrew Townsley believes that there's still a lot of confusion over the new ISA, particularly given that so few savers are making significant contributions. It's a growing concern among renters and single people too, with the report citing research from Mintel, which found that 66% of renters and 60% of single Brits have no savings or investments whatsoever, compared with 39% of their married counterparts.
The younger generations are also far less likely to hold a savings account, with just 33% of those aged 18-24 having some form of savings or investments compared with 70% of respondents aged 65+. There's also a marked difference in the ownership of ISAs, with 48% of those aged 45-54 holding one, more than double the 22% of those aged 18-24.
The figures indicate that older consumers are more likely to realise the importance of saving, but this has worrying implications for the younger age group. Saving early is key to not only financial stability in later life, but also to reach all those big life stages – marriage, a house and starting a family all require sufficient financial back up, and that's why it's so important to get started.
"When the new ISA changes were announced in March's Budget, many savers and investors were delighted as they made ISAs simpler and more attractive than ever," said Andrew Townsley. "But while the annual allowance has increased to its highest ever level, it's to be doubted whether individuals are actually saving and investing more for their future.
"The UK inflation rate is at its lowest level for four years, but it is still considerably higher than the ISA savings rates being offered by many institutions. This effectively means the value of your money is decreasing not increasing, so it's hardly surprising savers are confused."
Despite savings rates being low, the new rules mean there's now far more scope for savers to build up a decent fund, with the tax-free allowance having been raised to £15,000 in July this year. But, even if you can't afford to save that much, putting in smaller amounts could make all the difference – the interest you receive will be entirely tax-free, and if you add in the effects of compound interest, your pot could grow substantially over time.
Or, if you want the potential for even better returns, the increased flexibility surrounding cash and stocks & shares ISAs could add another benefit into the mix. Stocks & shares ISAs are a far more high-risk form of saving as your returns and even your capital aren't guaranteed, but the flexibility to move stocks & shares back into cash could make it a more viable option for those that want to give it a go.
Despite the lack of savings, there are indications that the ISA market could be set for a revival. Mintel predicts that the ISA market will grow by 31% in the next five years, while stocks & shares ISAs could see even larger growth, rising from 3 million in 2014, to 7.2 million in 2019.
It's hoped that savings rates will increase along with the growth in the market, as that in itself would surely encourage more savers to take advantage of the new rules. But, even though rates aren't overly enticing, there are still plenty of accounts that pay above the rate of inflation, thereby giving you the chance to build up a decent pot without its value being eroded over time. Check out our best buy tables to find the top-paying accounts that could suit your needs, and see if you could be part of the revival…
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