Individual savings accounts are becoming less popular among the British public, according to official figures published amid widespread criticism of the government’s help-to-buy Isa.
About 12.7m Isas were taken out by adults in 2015-16, said HM Revenue & Customs, down from 13m the year before. The number of new Isa openings peaked at about 15m in 2010-11.
But the amount saved into new Isas rose by £1bn to a record high of £80bn. The typical saver put £6,338 into an Isa, up 5% on the year before.
Historically low interest rates may have deterred some people from opening a tax-free Isa, although the evidence suggests that those who do have them – particularly older savers – are pouring in more money than ever.
The figures come amid sharp criticism of the government’s help-to-buy Isa, which has been called a “sham” for misleading aspiring homebuyers. It has emerged that the government bonus is not paid until a property sale is completed, and so cannot be used towards the initial deposit demanded by mortgage lenders. Separate figures for help-to-buy Isas were not published, but it is understood that close to half a million have been opened so far.
Since they were introduced by Gordon Brown as chancellor in April 1999, vast sums have poured into Isas, particularly after the tax-free investment limit was raised to £15,000 in 2014. The total market value of all Isas stood at £518bn at the end of 2015-16, up 7% on the year.
Most savers opt for a cash Isa, where the money is held on deposit and interest is paid tax-free, rather than a more risky stocks and shares Isa. HMRC said the share of cash Isas in the total of new Isa openings remained broadly static last year at just under 80% of the total.
However, there is evidence that more cash is now heading into stocks and shares rather than cash Isas, where interest rates have fallen below 0.5% for those wanting instant access.
The amount of new money invested in stocks and shares Isas jumped from £17.9bn last year to £21.4bn, while the amount put into cash Isas fell from £60.9bn to £58.8bn.
Danny Cox, of the financial advisers Hargreaves Lansdown, said: “Record subscriptions to stocks and shares Isas are a reflection of interest rates being at the lowest of the low. Equities are pretty well the only game in town for yield, for those happy with the additional risk.”
The tax incentives for opening a cash Isa are expected to decline over the next few years, following the introduction on 6 April of the new personal savings allowance.
The decades-old system under which tax is deducted at source from savings accounts has been swept away, with all the interest earned on savings now paid out in full. Individuals are allowed to earn up to £1,000 a year in interest without having to pay tax, which will mean the tax advantages of a cash Isa will, for many, become redundant.
The HMRC figures reveal that the biggest users of cash Isas have an income between £10,000 and £20,000, while stocks and shares Isa investors typically have an income of £30,000-£50,000.
The average Isa saver has managed to build up a total savings pot worth £19,538. However, for high earners, (those with incomes of £150,000 or more) the average saved in Isas is £64,148.
Women are more likely to save through an Isa than men. About 10.6 million men have an Isa, compared to 11.1 million women.
The big increase in Isa subscription limits, which jumped from £11,520 to £15,000 in April 2014, has largely benefited the already well-off.
Only 9% of subscriptions into Isas were at the maximum limit in 2014-15, although this jumped to 49% for those on incomes above £150,000. It is estimated that the tax relief on Isas cost the Treasury £2.6bn in 2015-16.
