Tax-free allowances will disappear on Sunday night
New research from HSBC UK has found that, although more than half of Brits (54 per cent) are committed tax-free savers during ISA season, there remains a persistent gap in how UK adults are saving for their future. It said close to two in five (39 per cent) admitted to not having an ISA as part of their saving or investment portfolio, missing out on valuable tax-free allowances.
HSBC’s nationally representative survey of more than 1,000 UK adults highlighted a clear imbalance in ISA adoption across the market, it said. The survey found that 44 per cent held a cash ISA, making it the most widely used product.
However, only 21 per cent had a stocks and shares ISA, despite the potential for higher long-term returns. Also, 39 per cent did not hold any ISA at all.
Among those who did hold ISAs, contribution habits also revealed a strong bias towards cash saving over investing, HSBC said. It found that nearly half (49 per cent) had contributed only to a cash ISA in the current tax year.
Just 18 per cent had contributed only to a stocks and shares ISA and only 12 per cent were contributing to both, highlighting a limited approach to diversified saving, according to HSBC.
Despite the £20,000 annual allowance, relatively few savers were making the most of it, with just 23 per cent saying they expect to use their full ISA allowance this tax year, rising among those aged 55 or older. On average, ISA holders estimate they expect to save around £11,330, just over half of their allowance.
The UK ISA investment gap
HSBC said that the data showed that while ISAs remain a cornerstone of UK savings behaviour, they are primarily being used for cash-based saving rather than long-term wealth building. Cash ISAs continued to appeal due to their accessibility, simplicity and perceived safety, while the lower uptake of stocks and shares ISAs points to a consistent investment gap among UK adults, with many not making the most of the benefits of a diversified portfolio of savings and investments to build long-term wealth.
In fact, 22 per cent of respondents said they did not know that they could hold a cash ISA and stocks and shares ISA in the same tax year, pointing to education being a barrier to people using their allowance.
HSBC has increased the interest on its Fixed Rate Cash ISA and now offers what it said was a leading rate of 4.5 per cent, combined with a recently launched ISA incentive for eligible customers, designed to encourage both new and existing savers to make the most of their ISA allowance before the deadline.
This means customers can not only benefit from tax-free interest, but also receive an additional boost through cashback, at a time when maximising returns is front of mind for many households.
The tiered incentive is based on the total amount of new funds added during the offer period, which runs cross-tax year. Those depositing £20,000 to £49,999 will get £150 into their HSBC current account, while those depositing £50,000 to £99,999 will get £250 into their HSBC current account. People depositing £100,000+ will get £500 into their HSBC current account.
Lloyd Robson, head of savings at HSBC UK, said: “Our research shows that while nearly half of UK adults are using Cash ISAs, a significant proportion are still missing out entirely on the benefits of tax-free saving. ISAs are one of the most effective tools available to help people build financial resilience, yet the vast majority are either not using them or if they are, not utilising their full allowance.
“That represents a major opportunity for people to take greater control of their financial future. There is also a clear gap between saving and investing. While cash plays an important role, it’s important that people feel supported and confident to consider a broader range of options that could help their money grow over the longer term.”
