- Households across the UK paid a record £14 billion into Cash ISAs in April, according to Bank of England data – the highest amount since ISAs debuted in April 1999
- Rumours of a cut to the Cash ISA allowance seem to have contributed to the surge in saving
- AJ Bell has long campaigned for simplifying the ISA system, rather than introducing new rules and restrictions
- Cutting the Cash ISA allowance is unlikely to change behaviours and could even amplify a sense of scarcity, driving Cash ISA contributions
AJ Bell director of personal finance, Laura Suter, says:
“Data from the Bank of England today reveals a record month for Cash ISAs, with contributions totalling a whopping £14 billion in April. That’s more than in any month since ISAs were launched in 1999, albeit the allowance is now far higher than it was then.
“This can be partly explained by higher interest rates meaning saving feels more rewarding now than it did just a couple of years ago when interest rates were lower. The data also suggests lots of people are taking money out of savings accounts to move it into an ISA and benefit from the tax protection, a sensible step given that millions are now paying tax on interest earned on cash accounts outside an ISA.
“However, it’s also likely that reports the chancellor is considering cutting the Cash ISA allowance have created a sense of scarcity, creating a ‘use it or lose it’ mentality among consumers. The threat of a cut to the allowance is likely to be a spur to action for many, especially given the relentlessly rising tax tide.
“Treasury officials are looking at options for ISA reform to drive a stronger retail investing culture in the UK, as signalled by the chancellor at the Spring Statement. In the long run, however, there is considerable doubt that a cut to the Cash ISA allowance would deliver a shot in the arm for the UK stock market.
“A recent survey commissioned by AJ Bell found that just one in five savers would invest more in the UK stock market if the Cash ISA allowance was cut. Over half would simply put their money into a taxable savings account. Good news for a chancellor hungry for money, less so for the London Stock Exchange.
“Encouraging more people to invest for the long term is a laudable and sensible aim, not just to boost the economy but to help people leverage the power of the stock market to meet their long-term financial goals. But government should look beyond cutting the Cash ISA allowance, which is unlikely to do anything to change people’s attitude to investing.
“AJ Bell has recently commissioned independent behavioural finance experts to look at the potential benefits of simplifying the ISA system, illustrating that a simpler ISA system could help break down the psychological and material barriers between saving and investing.”
