A few years ago, it was hard for most people to envisage saving money. With much of the UK scrimping in order to work through a tough economic recession, ISAs, bonds, and child savings accounts were not at the forefront of many minds. Today, however, new rules introduced by the coalition government appear to have stimulated a rise in the number of people saving.
In 2014’s budget, George Osborne announced that people would be able to save as much as £15,000 per year in their Individual Savings Accounts (ISAs). While the majority of people living in the UK are unlikely to hit this target, it does appear that this measure has had some positive effects.
Around £4.9 billion has been deposited in ISAs so far, although the number taking advantage of their tax-free savings accounts did drop in April. April is the month when initial deposits usually rise, as many have maxed out their ISAs from the year before. However, in 2012 £7.5 billion was deposited during April, and in 2014 this number stands at just £3.9 billion.
What do ISAs mean for the average worker? Whether you’re employed or self-employed, an ISA gives you your best chance of making cash-free savings with a UK financial institution. Around 23-million adults in the UK have one, which represents a significant proportion of the country’s working population. In the UK, ISAs attract the highest interest rates on savings.
While the prospect of an individual savings account that attract supposedly high interest rates is tempting, ISAs don’t always yield strong results. In 2014, the expected interest rates ISA owners will attract stand at just 0.86%. Even if you do reach £15,000, you’ll attract £129 for your efforts. In an era where interest rates and the cost of energy is constantly rising, this might seem a little measly.
In addition to allowing larger deposits in ISAs, George Osborne has also shifted the rules so that some of the money saved can be held as stocks or bonds. Theoretically, those who make a sound investment using their savings can make up for the low interest rates these accounts attract. When invested in stocks or bonds, ISAs may generate a significant amount of income for those holding them, but at the same time they can produce losses.
Whether you’re doing well financially or not, you always need to remember to prioritise debts before making significant savings. In addition, make sure you maximize your ISA’s saving limit before you begin investing in other accounts. Despite how low the ISA’s interest rates look, it still offers better value for money than all your other options. When choosing to invest money in stocks and shares, take a measured approach. Consulting a financial advisor or accountant is essential, otherwise you could see your hard savings work go to waste.