For the first time since they were introduced the amount of money put into money put into ISAs fell in 2011-2012 according to a new study.
The total amount of new subscriptions dropped from £53.7 billion in 2010-2011 to £53.5 billion in 2011-2012.
The research conducted by UHY Hacker Young, a chartered accounting firm, suggested that the result of savers putting less into cash ISAs. The amount of new money put into cash ISAs in in 2011-2012 fell to 37.7 billion, compared to £38.2 billion in the previous year.
All time low savings rates offered across the market may be to blame for savers shunning cash ISAs as a tax efficient way to save, with an average interest rate of 2.8% offered on Cash ISAs during 2012, well below the average rate of 5.1% offered on cash ISAs in 2008.
Savings interest rates have been heavily impacted by a range of factors over recent years including initiatives designed to encourage lending and kick-start growth such as Quantitative Easing and the Funding for Lending Scheme (FLS), both of which help drive down interest rates.
Mark Giddens from UHY Hacker Young said:
“Because the Funding for Lending Scheme offers banks money at a very low cost in order to encourage them to lend to small businesses, this means they have no real incentive to offer high interest rates to attract money from savers.”
“Unfortunately, with many predicting that the Funding for Lending scheme will continue to keep interest rates low, the drop in ISA savings we have already seen may be the beginning of a worrying trend.”
According to research from the firm, savers could be losing around £18 billion each year as inflation eats into the real value of their money.
Giddens went on:
“With interest rates low – and even worse – substantially lower than the rate of inflation, savers are struggling to find a sensible and safe way to make their savings grow.”
Individual Savings Accounts (ISAs) provide a tax efficient way to save or invest, protecting money held within from UK income tax and capital gains tax. Cash ISAs act as a wrapper for savings, while stocks and shares ISAs provide a wrapper for investments.