Latest news with #cashIsas
Telegraph
2 days ago
- Business
- Telegraph
Savers pour record £14bn into Isas ahead of Reeves crackdown
Savers poured a record £14bn into cash Isas in April amid fears of a raid by Rachel Reeves on the tax-free accounts. Monthly deposits were the highest since the system was introduced in 1999, according to Bank of England data. While Isa deposits tend to rise towards the end of the tax year on April 5, Ruth Gregory, at Capital Economics, said the record total 'was probably due to speculation around the Chancellor considering slashing the cash Isa tax-free allowance'. Ms Reeves has been consulting on changes to the Isa system as she seeks ways to push more money into stocks and shares to boost growth. Savers can currently stash up to £20,000 into an Isa every year, with the option to split the money between cash or stocks and shares. The Chancellor confirmed last month that she will not change the overall annual limit on contributions, although she left the door open to curbing the amount that can be held in cash. Ms Reeves said: 'I'm not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that's in a pension or in their day-to-day savings.' Emma Reynolds, the City minister, previously told a Lords committee that cash Isas were draining investment from the London Stock Exchange. 'Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture,' she said. Lowering the amount that can be put into cash Isas would mean millions would be able to save less each year tax-free and would face a choice between putting money into savings accounts subject to tax or investing in riskier stocks. Banks and building societies have been urging Ms Reeves to leave the system as it is. David Postings, the chief executive of UK Finance, which represents both banks and building societies, told The Telegraph last month: 'They are an easy-to-understand product that help individuals start saving and set aside money for the future. 'The money banks and building societies hold in cash Isas is also lent out, supporting borrowers and the wider economy.' Robin Fieth, the chief executive of the Building Societies Association (BSA), said: 'Simply changing Isa limits is unlikely to encourage people to invest, but it will hurt people who are responsibly saving for short-term goals, when investing is not appropriate. 'If the Government decides to make any changes to Isa limits it should make them to both stocks and shares Isas as well as Cash Isas, otherwise the administration of the system will become unnecessarily complicated.' Roughly 22.3m British adults hold more than £725bn in Isas, according to government data. The average amount stashed into a cash Isa was £5,295 in the 2022-23 tax year, according to official statistics, although this has climbed further against a backdrop of rising interest rates. 661,000 of the 6.5m people who put some money into an Isa in 2021-22 put in the maximum £20,000 annual limit in cash. While capital gains held in Isas are also tax-free, cash accounts outnumber stocks and shares by a ratio of 2:1. Despite this, more money is held in equities overall, with some £425bn parked in stocks and shares compared with £300bn in cash. James Blower, of The Savings Guru, a comparison site, said the 'astonishing' April deposit total also reflected the fact that interest rates on offer tended to be market-leading. He said: 'This is certainly helping fuel interest because there's very few people who won't be better off choosing an Isa as a result.'
The Independent
3 days ago
- Business
- The Independent
Record £14 billion cash Isa injection made by savers in April
Savers injected a record £14 billion into cash Isas as the new tax year got under way, according to Bank of England figures. An additional £14.0 billion was deposited into cash Isas in April – the highest amount since records started in April 1999. Commenting on the report, finance experts suggested that speculation over the future of cash Isas, attractive rates, and the tax efficiencies of the accounts prompted savers to pile their money into Isas. The new tax year starts on April 6 each year, and the period around it is known as 'Isa season' as providers try to attract customers with enticing rates. In total, households' deposits with banks and building societies increased by £3.0 billion in April, following net deposits of £7.3 billion in March – with Isa deposits being offset by other account withdrawals. Mark Hicks, head of active savings, Hargreaves Lansdown said: 'Cash Isas dominated the savings market, attracting an eye-watering £14 billion – the highest on record. 'Higher rates and rumbling discussions about the future of the cash Isa pushed tax saving to the top of the to-do list.' He added: 'The level of withdrawals from easy access savings seems to indicate a significant proportion of Isa savings has come from people withdrawing from savings and ploughing the money into their Isa equivalents at either end of the tax year, to take advantage of the tax saving. 'As competition heated up over tax year end, rates remained elevated, but they have fallen since.' Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: 'While uncertainty in the domestic and global economy may have motivated consumers to top up their savings, some may have been taking advantage of higher savings rates while they were still around.' She continued: 'Worsening real returns on cash savings, once inflation is factored in, will come as a blow for savers, though with increasing numbers of taxpayers being dragged deeper into the tax net as their wages increase – a result of frozen personal tax thresholds – it is the post-tax net return on that cash that delivers the biggest hit.' Ms Haine said that the personal savings allowance – the amount of tax-free savings that savers can earn – has remained static 'raising the likelihood that those with the best savings rates use up their allowance in full and pay tax on the interest they earn'. Speculation over any possible future changes to cash Isa limits may also have been a factor, she added. Ms Haine said: 'While Chancellor Rachel Reeves has confirmed the £20,000 (annual) Isa allowance will remain intact, speculation that she will cap the amount savers can subscribe to a cash Isa is rife, as it feeds into her wider mission to encourage more people to invest their money and contribute to the Government's growth mission.' Meanwhile, the number of mortgage approvals being made to home buyers fell for the fourth month in a row in April. Around 60,500 loans for house purchase got the green light in April, which was a fall of 3,100 compared with the previous month. Stamp duty discounts became less generous for some home buyers from the start of April. Stamp duty applies in England and Northern Ireland. The Bank also said that approvals for remortgaging (which only capture remortgaging with a different lender) increased by 1,600 to 35,300 in April, following an increase of 1,000 in March. Richard Donnell, executive director at Zoopla, said: 'A slowdown in demand for mortgages in April reflects the impact of a late Easter. 'We expect mortgage data for May to increase in line with a pick up in new sales being agreed, which are running at their highest level for four years. 'A key factor is also lenders relaxing affordability tests, which is delivering the average home buyer up to 20% more borrowing capacity compared to a few months ago. We expect a busy June as buyers look to secure sales before the summer holidays kick in.' Figures released by Nationwide Building Society on Monday showed property values increased by 0.5% month-on-month in May, following a 0.6% fall in April, taking the average UK house price to £273,427. The typical UK house price increased by 3.5% annually in May, compared with 3.4% in April, according to Nationwide's figures. Banking and finance industry body UK Finance also said on Monday that mortgage completions rose sharply in the first three months of 2025 as both first-time buyers and home movers sought to complete transactions to benefit from lower stamp duty rates before changes took effect on April 1. For the quarter as a whole, first-time buyer completions jumped by 62% year-on-year and home mover completions increased by 74%, UK Finance said. The UK Finance report said: 'There were notable peaks in March, with the number of first-time buyer and home mover completions increasing by 113% and 140% respectively compared with March 2024.' Data from HM Revenue and Customs (HMRC) last week indicated there were 64,680 house sales in April – 64% lower than the total for March – as buyers had rushed to beat the stamp duty deadline. The Bank of England's Money and Credit report also said that, looking at non-mortgage borrowing, the annual growth rate for consumer credit accelerated to reach 6.7% in April, from 6.2% in March. Within the total, the annual growth rate for credit card borrowing increased to 9.8% in April, from 8.5% in March.
Daily Mail
3 days ago
- Business
- Daily Mail
The Government's looming Isa raid is even worse than you think, says our Money editor RACHEL RICKARD STRAUS. Here's why they're set to slash allowances
It is all but certain that Chancellor Rachel Reeves will slash the amount that we can put in cash Isas. She has repeatedly refused to deny that she will – and industry sources suggest the most likely limit will be £4,000 of our total £20,000 tax-free allowance – the rest to be used only for investing. But details hiding in official savings figures that have until now been overlooked make me fear that far more Isa restrictions are on the cards. Here's why.
Daily Mail
4 days ago
- Business
- Daily Mail
RACHEL RICKARD STRAUS: I fear Labour is set to slap tough new rules on where you invest your Isa
It is all but certain that Chancellor Rachel Reeves will slash the amount that we can put in cash Isas. She has repeatedly refused to deny that she will – and industry sources suggest the most likely limit will be £4,000 of our total £20,000 tax-free allowance – the rest to be used only for investing. But details hiding in official savings figures that have until now been overlooked make me fear that far more Isa restrictions are on the cards. Here's why. Reeves has stated two motivations for meddling with Isas. The first is helping people to get a better return on their savings. Her theory is that if she restricts the amount we can save tax-free in cash we will invest instead (whether this strategy will work is debatable: it is more likely that we will just divert our cash into ordinary savings accounts). The second motivation is the one underlying all of Reeves's decisions: to help drive economic growth. This ambition will not be fulfilled simply by restricting cash Isa limits. Even if it leads to a wave of cash flooding into financial markets, only a small pool of it will go into UK companies. New investors are likely to put money into popular stocks – such as Nvidia, Meta and Apple – rather than favouring the UK. The UK makes up only 4 per cent of the global stock market, so an investor opting for a well-diversified portfolio would be unlikely to put much into this country. That's why, if Reeves wants to achieve her aims, she will have to force us to invest in assets that would boost UK growth. She may insist that a portion of stocks and shares Isas must be directed at UK companies. She made a similar demand of pension funds last week – and sources tell me this is being discussed for Isas as well. It wouldn't be the first time such an idea was mooted – the previous government considered something similar when it tried to launch a British Isa that savers could use to invest in UK companies. The next clue that Reeves will force – or incentivise – savers to invest part of their Isa allowance in the UK is in the Premium Bond figures. Premium Bonds hold so much of our cash that if encouraging us to invest more was her sole priority, she'd be slashing the amount we can put in them too. From a saver's point of view, Premium Bonds offer an even poorer return than cash Isas. At least in an Isa you earn interest. With Premium Bonds you're simply holding out for a prize. There are millions more holders of Premium Bonds than cash Isas – around 24 million versus just 14 million – and we hold a stonking £127.7 billion of cash in them. As many as 1.2 million savers hold the maximum permitted amount of £50,000 in Premium Bonds. No doubt plenty of that cash could be earning a better return if invested instead. If her priority was to get better returns for savers, she would slash that maximum. But, of course, she won't. Not just because it would be unpopular – that has not stopped her in the past. But because, unlike cash Isas, money saved in Premium Bonds does help drive economic growth. Premium Bonds are one of the products sold by NS&I to bring in billions for the Government for it to spend. It is a form of government borrowing – but one that doesn't appear on the books like other types of debt. Her willingness to overlook poor returns for savers in Premium Bonds shows where her priorities lie: economic growth first, savers' wealth second. The third clue lies in the official Isa figures from HMRC. They reveal that restricting the amount we can save in cash to encourage us to invest more will not work. Until 2015, Isa allowances were restricted just as Reeves is currently planning. You could only put a proportion of your Isa allowance in cash – the rest had to go in stocks and shares. If Reeves is right that savers need to have their cash Isa allowance curbed to get them to invest, you would expect that savers might have flocked to cash as soon as the rules were abolished in 2015. But they did not. In fact, when they were permitted to save as much of their allowance in cash as they liked, they chose to invest more. Before 2015, for every £10 going into a cash Isa, £4.10 went into a stocks and shares Isa. After 2015, for every £10 going into cash, £5.90 went into stocks and shares, analysis by investment platform XTB shows. The proportion going into stocks and shares has ballooned – we hold £431 billion in stocks and shares Isas, compared with £294 billion in cash Isas. So the Chancellor can't use the excuse that she needs to restrict cash Isas to get savers to buy more stocks and shares – they are already investing more. But that won't matter to her. The real motivation is to drive growth – and in this plan cash savers are merely a pawn. So what comes next? I fear the freedom to save and invest within our Isa however we choose is about to be clobbered on all fronts. Savers need to prepare for a regression back to 1999, before the Isa was even launched. Back then, savers were reliant on Personal Equity Plans. These were the predecessor of the Isa and offered tax-free investing but required you to put a proportion of your allowance into UK companies. That is where we're heading – back where we started, with our freedoms restricted, as if nothing had been learned.
Telegraph
17-05-2025
- Business
- Telegraph
The solution to Britain's savings crisis is staring Rachel Reeves in the face
Speculation about reforming Isas has been running wild in 2025, with the rumour mill largely focused on the future of cash Isas. As things stand, Britons can pay up to £20,000 each tax year into their Isas, a level some have argued should be lowered for cash Isas in the hope of nudging more people to invest for the long-term. For its part, the Government has said it wants to 'get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission'. These aims are laudable, and the potential prize here is significant. AJ Bell's analysis of HM Revenue and Customs (HMRC) figures suggests around £100bn is held by people with £20,000 or more in cash Isas who have not invested a penny in stocks and shares Isas. Although some will have sensible reasons for only saving in cash, such as those in retirement holding unspent cash withdrawn from their pension plan, many others will have a longer-term time horizon and will be missing out on greater long-term returns from investing. Slashing cash Isa allowances might seem an intuitive policy response, but our research suggests this would be both ineffective and unpopular. Just one in five cash Isa holders say they would migrate to investing in the UK stock market if the cash Isa allowance was reduced or abolished, with the majority (51pc) saying they would simply stick the money in a taxable savings account, and a further 24pc indicating they would opt for NS&I products. This illustrates the savings challenge we have on our hands – as a nation, we are overly focused on cash savings. But catalysing a change in behaviour won't be achieved using a stick to beat cash savers. Cutting the cash Isa allowance would also be politically unpopular. Just 3pc of cash Isa savers agreed the £20,000 allowance should be reduced, an important figure for a government languishing in the opinion polls. Luckily for the Chancellor, there is a straightforward route to improving Isas that would support people switching from cash to long-term investing. We believe simplifying Isas would help remove the barriers between saving and investing at zero cost to the Exchequer and with no need to pursue the unpopular move of slashing the cash Isa allowance. Currently, the Isa system labels people as either cash-only savers or investors, with a distinct product for each group. Essentially, when you choose your Isa, you either turn left for cash or right for investing. This structure implies that people are either risk takers or they are not, and HMRC's figures suggest people tend to take an either-or decision, with only a small number of people holding both a cash and stocks and shares Isa. But any financial adviser will tell you this misunderstands the needs of the vast majority of people. Most people should hold some money in cash for emergencies or short-term needs, but they will also want some of their funds working harder over the long-term. Having separate products for cash and investing requires multiple products to be held, or product switching to be undertaken. Friction between the two could easily be removed by merging cash Isas and stocks and shares Isas to create a single Isa product, making it easier to transition between cash and long-term investing. It would also simplify the upfront choice new investors are required to make. Rather than choosing a cash Isa or a stocks and shares Isa, they simply opt for an Isa. Under the current system, which appears to many as a binary choice, millions simply choose the path of least resistance and save in cash alone, often never even exploring the investment route at all. Isa simplification of this kind could form a powerful double act with 'targeted support' reforms currently on the table. In simple terms, targeted support should allow investment providers to offer more help to consumers, which is specific to people like them but without going so far as to provide the kind of advice provided by a professional financial planner. While still a work in progress, those reforms could make investing easier for many people. A simpler Isa system combined with more help for consumers could provide the foundation for the retail investing revolution Rachel Reeves hopes to see. The big win here for the UK as a whole is that is that DIY investors are big supporters of domestic companies (and they also buy the most abundant of assets, UK government debt). Rules to require a certain amount of the assets in stocks and share Isas to be held in UK companies have again been rumoured. But additional quotas and restrictions are not required. Half of the assets held by AJ Bell customers in their Isas are already invested in UK assets. Over the long-term, a boost to UK capital markets would be a natural by-product of an improved retail investing culture. We don't need an Isa system to change the behaviour of retail investors in the UK, we just need a system that makes it far easier for people to become retail investors in the first place.
