1 in 4 Brits plan to open an ISA in the new tax year

1 in 4 Brits open ISA - featured image

How do different ISAs perform and is this tax-free saving method right for you?

More than 13 million Brits plan to open an ISA after the new financial year starts on 6 April, according to a new Finder survey.

ISAs allow you to earn interest on savings, and returns on investments, tax free. But there’s an annual limit for how much you’re allowed to deposit in them, which is currently £20,000. This resets in the new tax year, which starts on 6 April.

Around a quarter of Brits – 13.6 million – intend to open an ISA in 2024/25, according to the latest statistics. This includes 1 in 5 who already have an ISA and plan to open a new one and 1 in 20 who don’t currently have an ISA.

This leaves three-quarters of Brits who won’t be looking to take advantage of their renewed ISA allowance.

Among age groups, those aged 25-34 are most likely to open an ISA, with more than two-thirds having plans to do so in the new financial year.

How much money do Brits put into ISAs?

Around £66.9 billion was deposited in adult ISAs during the 2021/22 tax year, including £34 billion in stocks and shares ISAs and £30.9 billion in cash ISAs, according to the most recent statistics (for 2021/22).

The average amount put into a cash ISA was £4,330 and the average for a stocks and shares ISA was £8,690. The annual limit is £20,000 across ISA types in a single tax year.

What are the benefits of opening an ISA?

Putting your savings in an ISA means that any interest you earn is tax free so it’s a good option if you don’t want to exceed your personal savings allowance. This is the amount you can earn in interest without paying tax. It’s currently £1,000 if you pay basic income tax, and £500 if you pay higher rate income tax.

How do I choose between a cash ISA and stocks and shares ISA?

Fixed-rate cash ISAs provide a guaranteed return, which makes them a popular option for saving if you don’t need instant access to your money.

As of 3 April, the highest interest rate we found on a 1-year fixed-rate ISA was 5.05%. The average savings amount is £11,185 in the UK, so if you locked this away in the ISA for a year, you’d earn £565 in interest.

According to the finance data specialist Moneyfacts, the average return on a stocks and shares ISA was 2.8% between February 2023 and 2024. Cash ISAs beat this during the same period, with an average interest rate of 3.73%.

The performance of stocks and shares ISAs varies wildly, making them a riskier option. For example, the average stocks and shares ISA returned 6.92% between February 2021 and 2022 – much higher than the average cash ISA rate of 0.51% in that period. However, it made a loss of 3.27% the following year.

Finder’s experts have explained the latest ISA changes for the new tax year so you can understand how to take full advantage of your tax-free allowances.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. A stocks and shares ISA may not be right for everyone and tax rules may change in the future. If you are unsure if an ISA is the right choice for you, please seek independent financial advice.

About the author

Sophie Barber is a content manager for finder.com in the UK and she has over 5 years of experience in writing and publishing informative online articles for a variety of websites. She has a Master’s in English from the University of Exeter and is passionate about creating content that taps into trending topics and helps make personal finance decisions easier.

This article originally appeared on finder.com/uk and was syndicated by MediaFeed.org.

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