New data from HMRC reveals that cash ISAs attracted 1.2m more savers in 2019-20, as an increasing number of people ignored low rates to put money away. Why are cash ISAs the nation's go-to place for their spare cash?
The data shows savers paid into a huge number of cash ISAs during the 2019-20 tax year: 9.7m in total, up from 8.5m the year before.
James Andrews, senior personal finance editor at money.co.uk said: “Cash ISAs are firmly established in the nation’s mindset as the go-to place to put any spare cash - having been first introduced in 1999.
“But while more people dropped their savings into them last year, they’ve possibly never been less rewarding.
“The value of their tax-free status was heavily eroded with the introduction of the personal savings allowance in 2016, letting people earn £1,000 of interest a year before income tax is applied (£500 for higher-rate taxpayers), while interest rates hit new, all-time lows of 0.1% last year.
“But in a time of uncertainty, the familiarity of the brand seems to trump both these concerns.
“If you’re one of the millions of people putting money into a cash ISA, you need to make sure it’s as rewarding as possible - particularly as you can only put money into one each year.
“First, carefully consider how accessible you need the cash to be. The longer you can lock the money away for, the more interest you will get. You can also frequently transfer any existing ISAs you have into the new, hopefully better paying, account once you’ve found it.
“Second, be honest about if cash ISAs are for you at all. Smaller deposits can earn far more in products like high-interest current accounts or regular savers. If growth, rather than certainty, is your goal - take a look at stocks and shares ISAs too.
“There’s more risk with these, but there’s also the chance you could make far larger returns - especially if you’re prepared to leave the money alone for a few years.
“Finally, if all you’re doing is putting money away for a rainy day, Premium Bonds might be worth a flutter.
“Your money’s safe, you can get it back within a week or so if needed, and there’s a chance you could win £1million tax free. Most people don’t, of course, and many win nothing at all, but with the interest on cash some easy-access cash ISAs sitting at 0.01% - and even the best-payers only offering 0.46% - that’s a lot less of a problem than it once was.”
“To compare the best cash ISAs currently on the market, visit: https://www.money.co.uk/savings-accounts/cash-isas.htm.”
James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments - picking up a series of awards for his journalism along the way.