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A third saving for retirement with ISAs

A third saving for retirement with ISAs

Category: ISAs

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The popularity of ISAs is showing no signs of waning, with new research showing that more than a third of Brits are now using an ISA to save for their retirement. What are you using your ISA for?

The research, conducted by Alliance Trust Savings, shows that most people still use ISAs for the classic savings purpose of rainy-day funds (at 73% of people surveyed). Meanwhile, 36% use the ISA for retirement saving, 13% for saving up a deposit, and 11% of people use their ISA to be able to pay off their mortgage early. People in the North are particularly keen to use their ISA for retirement saving, at 48%.

But is this the best option? While saving for retirement is always a good idea, and ISAs have the advantage of being tax-free, pension savings funds exist for a reason. Aside from also benefitting from tax relief, pension pots managed through work have the further advantage of getting money paid in by your employer as well, and will often have better interest pay-offs.

One of the reasons pension pots can build up to a greater degree than ISAs is because they often involve some stock market investment. In contrast, the survey revealed that 91% of respondents had a cash ISA, compared with just 29% who had a stocks and shares ISA, and a paltry 5% with a Help to Buy ISA. Only London saw nearly half (47%) of respondents with a stocks and shares ISA, possibly because they also have the biggest savings funds out of all regions. Although lower usage of stocks and shares ISAs is to be expected given the higher risks involved in them, the current record low cash ISA rates could make the addition of a stocks and shares ISA to your savings plans worth considering, but only if you're comfortable with the risks.

The survey certainly showed that there is scope for people splitting their ISA savings into different accounts, with 34% having between £1 and £10,000 saved up, but a larger 35% having between £10,001 and £50,000, and a whole 25% between £50,001 and £250,000. Only 7% have more than £250,000 in ISA savings, but you don't need this much to be able to diversify. Just make sure you're happy with the extra risk and longer term that goes with stocks and shares ISAs, and consider splitting some of your savings off to take advantage.

What next?

If you're not sure what ISA to get, or even whether or not to get an ISA at all, read through our guides to get a better idea of what's involved. If you've made up your mind and want to join the large majority of people with an ISA, take a look at the current top cash ISA rates, and check out stocks and shares ISAs as an alternative or addition to your savings.

Don't forget about your workplace pension either – read our retirement and pension guides to find out more.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.