In order to combat their fears against rampant inflation, savers have begun to invest more heavily into ISAs and other high interest savings accounts.
According to HMRC, more than 390,000 additional ISA savings accounts were opened in the 2010-2011 tax year than the previous one. Cash ISAs were left in the dust for stocks and shares ISAs, the tax official stated, with average balances growing by 11 per cent to a high of £4,627.
Even though cash ISA figures remained mostly flat, savings balances rose by a factor of 17 per cent in existing accounts to an average of £3,190. ISAs have been perennially popular due to the tax-free nature of their accrued interest, and as the after-tax interest rates on traditional savings products are much lower than their tax-free counterparts, ISAs have always proven to be highly popular choices in times of economic turmoil.
Even though savers were found to have opened the floodgates on ISA deposits last tax year, new research reveals that the number of people who have dipped into their savings pots grew as well. The average balance on savings products fell by 5 per cent last year to £1,684, according to official figures.
The draining of the nation’s savings balances was precipitated by rampant inflation in the UK, which has been steadily driving up the cost of living, according to ING Direct. A separate research survey even discovered that some parents have had to tap into funds they had set aside for their children’s future in order to make ends meet.
However, it appears that savers have gone to great lengths to avoid dipping into their ISA balances, as doing so will sacrifice a part of their allowance permanently.