Savers in Wales failing to cash in on tax free savings missing out on millions in lost interest each year

More than a third of all savers in Wales are failing to take advantage of individual tax free savings scheme with the nation turning its back on earning around an estimated £4.8 million more interest in an ISA each year than in an ordinary savings account, according to new research.

Just over 36% of those surveyed in the latest Principality Building Society Savings and Spending Survey revealed they do not put any money into Cash ISA accounts despite the tax free benefit. In fact, more than half the people of Wales did not even know that the interest earned with Cash ISA accounts is completely free of tax.

Despite the ISA savings concept being 12 years old this year, it seems that in Wales, at least, confusion surrounds the products with 42% saying they didn't realise there is a limit on the amount you can invest in a Cash ISA each financial year, and more than 10% believing you can only ever take out one Cash ISA.

The sixth Principality survey, carried out by Cardiff based Research & Marketing and conducted among 500 people living in Cardiff, Swansea, Newport and Wrexham, provides a regular snapshot of the spending and savings habits of the people of Wales and shows that more than a quarter of those polled, 25.6%, find ISAs confusing.

And with less than a month left in which to cash in on the 2010/11 ISA season, a huge 62% of people in Wales have still not made use of this year's £5,100 tax free Cash ISA allowance.

Of those who find ISAs confusing, 43% do not understand how to go about transferring ISA savings accounts from one product to another, while 43% don't understand the limits of how much you can save each year and how many ISAs you can open.

When it came to knowing how much an individual can save in a Cash ISA in the current financial year that ends on April 05, some 67% got the figure wrong and didn't know that the current limit is £5,100.

The limit for the 2011/12 ISA season, which starts on April 06, is increasing in line with inflation to £5,340 but just 14% of people in Wales knew the exact figure, while 58% admitted they had absolutely no idea how much they would be allowed to save tax free from next month.

Even more worrying, claims the survey, is the number of existing Cash ISA savers in Wales who have no idea what their old ISA accounts are earning them in interest and are just taking out ISAs to leave for a rainy day or a financial emergency.

Some 64% of people who have taken out Cash ISAs over the last 12 years say they never review them and leave them to stagnate earning very low interest year on year, 76% do not know how much interest their old ISAs are earning, and 90% of ISA customers do not use the tax-free accounts as their first port of call for ordinary savings.

‘The tax benefits offered by ISA Savings accounts means that they should be the first point of call for every saver. Whether you are saving for a rainy day or for a specific purchase, protecting your cash from the taxman will certainly help people to reach their savings goal faster, particularly in the current climate,’ said Principality's savings manager, Kate Murray.

‘Savers who have been filling up their Cash ISA's since they first launched in 1999 could have as much as £60,000 held safely out of the tax man's reach, which means that basic rate tax payers have kept 20% more of the return than they would have if it had been in a non ISA account, and higher rate tax payers have saved an even bigger 40%,’ she explained.
  ‘Understanding the rules around ISA's and taking a proactive approach with your ISA savings is the key to boosting your returns. With interest on most accounts calculated daily, the sooner you get your money into the account the healthier your savings will look at the end of the next financial year. The clock is ticking for those who either haven't yet opened a Cash ISA this tax year, or still have their allowance of £5,100 to fill.

‘And once you have opened an ISA it's just as important to review it. Interest rates fluctuate year on year so if you don't check it, you could be leaving money in a poor paying account, losing out on valuable interest,’ she added.