ISA accounts can be opened and contributed to from the beginning of every tax year, which falls on April 6. For the current year, recent analysis shows savers have been keen to set up Lifetime ISAs, likely in a bid to take advantage of the Government’s various property support measures.
Derek Sprawling, a savings director at Paragon Bank, provided insight and data on this demand.
He said: “As April draws to a close, a new tax year is in full swing. With the Easter Bank holiday overlapping the end of the tax year, many savers will have found themselves with a little less time than usual to make the most of their allowances last year. Some might have missed out as a result.
“Many savers will have rushed to open a Lifetime ISA before the end of the tax year and use their £4,000 allowance in time to earn the generous Government bonus – we saw a three-fold increase in enquiries in the week leading up to the end of the tax-year.
“This tax year also meant a reinstated penalty to 25 percent followed a temporary reduction to 20 percent during the pandemic, which allowed savers to access their cash should they need to, while only losing the bonus opposed to any capital.
“The return of the 25 percent penalty means that savers’ capital is once again compromised in the event of withdrawals. With the bonus value considered, a withdrawal will cost a customer roughly 6.25 percent of their capital – a sizable loss.
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“This change highlights the importance of thoughtful consideration and planning when it comes to people choosing the right product for their specific goals. It also emphasises how key it is for savers to use a range of savings products that is diverse and fit for purpose.
“There is absolutely no doubt that the Lifetime ISA presents an invaluable resource for eligible customers who are looking to buy a first property or want to save for retirement.
“Many an aspiring homeowner will be familiar with the impatience of saving up for a sizable lump sum to use as a deposit. However, a Lifetime ISA is no place for an emergency fund.
“I would encourage Lifetime ISA holders to not lose sight of the importance of a rainy day fund. This account should of course offer a level of access, and savers can earn interest on their balance by choosing a competitive product. One option to consider is an easy access ISA, which can offer savers the chance to earn a little bit extra by offering tax-free interest.”
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On top of the Lifetime ISA demand, savers also appear to be prioritising easy access to funds in the face of economic uncertainty.
Derek continued by examining trends seen in the savings market: “[The] data does suggest that many savers are indeed already prioritising saving for a rainy day. Easy account balances continued to grow steadily throughout the pandemic and that the average easy access balance has now topped a record £11,000.
“The boost to savings during the pandemic has been well documented, with Bank of England estimating that £162billion has been saved since the first lockdown last March.
“Much of this balance growth has been made in easy-access and current accounts. This is in contrast to most other saving product categories, including fixed rate non-ISAs and all cash ISAs, which have seen growth reduce year-on-year.
“In contrast to this, the non-interest bearing market has climbed an enormous 29 percent year-on-year, by far the largest segment growth across any category.
“This trend is reflective of the fact lockdown has created a nation of ‘accidental’ savers, with many finding they have additional disposable income due to reduced expenditure during the pandemic.
“While some savers will deliberately be building their emergency fund, others might be unsure of the long-term plans for any money accrued during the pandemic, and are storing it somewhere they can easily access in the meantime.
“Regardless of long-term saving goals, it’s important for people to move savings out of current accounts, where they may be earning zero interest, in order to receive at least some return. ISAs should also not be overlooked as they provide tax free income now and in the future.”
While savers may be favouring easy access accounts, the most recent data from Moneyfacts.co.uk revealed long-term fixed savings accounts are providing the best deals at the moment.
In their latest “Pick of the Week” results (released today), it was shown that the best deals can be found with FCMB Bank (UK) and United Trust Bank.
Eleanor Williams, a Finance Expert at Moneyfacts.co.uk, reviewed both products and on FCMB Bank she had the following to say: “FCMB Bank (UK) has launched new Raisin UK Fixed Term Deposit accounts this week, including an 18-month option that pays a rate of 0.68 percent on maturity (compounded annually).
“This account secures a position in our top rate tables when compared to other bonds with similar terms currently available. Early access and further additions are not permitted, as may be expected in the fixed rate market, however, those who have at least £1,000 to invest and who are happy to lock their savings pot away for the 18-month term may find this an appealing option. Furthermore, a welcome bonus of up to £50 can be claimed when opening a Raisin UK product, which is added to the saver’s investment pot. Overall, the account earns an Excellent Moneyfacts product rating.”
On United Trust Bank, Eleanor concluded: “This week, United Trust Bank has made rate increases on a selection of both its UTB Bonds and ISA Bonds. Those able to meet the minimum investment amount of £5,000 may be interested to note that following a rate rise of 0.10 percent , the UTB 3 Year Bond now pays 0.90 percent on anniversary. This increase sees the bond assume a position within our top 10 when compared to other bonds with similar terms. Neither early access nor further additions are possible with this account, so investors attracted by the competitive return should ensure that they are comfortable securing their funds away for the account’s term at outset. Following this update, the account secures an Excellent Moneyfacts product rating.”
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