Why Are ISAs Getting So Popular? All You Need to Know

published Jul 14, 2021
1 min read

Savings Account
For a while now, it seems like there are no stopping people from talking about ISAs. A short for Individual savings accounts, UK savers are increasingly putting their money into different ISAs.

According to the HMRC, the year 2019 – 20 added around 2 million more savers than the previous year. Cash ISAs alone added 1.2 million new savers over that period. The trend continued across the board, with Stocks and Shares ISA, Lifetime ISA, and Junior ISAs reaching new highs, too.

With the Adult ISA market value hitting £620bn, the chances are you already have ISAs. If not, perhaps you should look into it. It’s what the name suggests – savings account with a bank of your choosing, except that you won’t pay any taxes on your capital gains or interests. If you are aged 16 or over and living in the UK, you can open individual savings accounts. The maximum you can save tax-free is £20k, which you can distribute in different types of ISAs.

Cash ISA vs Stocks and Shares ISA

As mentioned before, Cash ISAs seemed to be the most popular among UK savers over the last year. It has now surpassed the amount held in Stocks and Shares ISAs, albeit by a lower margin. To be precise, Cash ISAs market value now accounts for 51 percent of the total, with the rest going to Stocks and Shares ISAs holdings. As the interest rate of savings accounts isn’t as volatile as investing in the stock market, Cash ISAs appealed to them more. It’s more of a risk-averse approach, where one is content with whatever rates they get. This particular type of ISA also gives the savers the quickest access to their money.

However, some financial experts like Brewin Dolphin have warned savers about possible paltry returns in their savings due to inflation and low-interest rates. He even went on to say that it was a lost opportunity for savers as Stocks and Shares ISAs offered better protection against the constant rise in living expenses.

You see, with Stocks and Shares ISAs, you can invest your savings into an array of financial instruments – Shares, Bonds, ETFs, Investment Funds. While these instruments can be volatile sometimes, they usually offer more significant returns. Moreover, with banks providing different investment packages to align with your personal savings goals, they are often the most lucrative way to put your money to work. You will now also find banks that charge no fees to manage up to £20k portfolio in investment ISAs. Coupled with no capital gain taxes, it means that you will get to keep all your earnings to yourself.

Take some financial advice

Which ISAs are best for you depends on factors like your personal circumstances, savings goals, retirement plans, etc. As different ISAs have different parameters, it’s best to consult a financial expert. Anyhow, try to find an online bank so that you can manage your ISAs effortlessly.