Now even cash Isas are too complex, with the amount of money deposited by savers down by 80%
- Money Mail has highlighted the complexity of these once-simple accounts
- Savers today must trawl through seven types of Isa to work out which is best
- The banking trade body UK Finance has written to chancellor Philip Hammond pleading for simplification
Savers have lost interest in the once popular cash Isa. Launched in 1999, it was hailed as a simple account that allows you to earn tax-free interest.
But now savers have been put off by low interest rates, changes to tax rules and a stream of new types of Isas. As a result the amount of money deposited into cash Isas is down 80 per cent compared to three years ago.
Money Mail has repeatedly highlighted the complexity of these once-simple accounts. Now the banking trade body UK Finance has written to chancellor Philip Hammond pleading for simplification ahead of the Budget next Monday.
In his letter Stephen Jones, chief executive of UK Finance, says: ‘Our members have become concerned by the complexity of the Isa landscape. We encourage the Government to avoid further reforms that do not provide a simplification to the rules,’ he adds.
Savers today must trawl through seven types of Isa to work out which is best for them. These include the basic cash Isa — suitable for everyone — where you can save up to £20,000 a year and any interest you earn is tax-free.
The Flexible Isa is the same as a normal cash Isa, but customers are able to take money out and replace it in the same tax year without the move counting towards your annual cash Isa allowance. The portfolio Isa allows you to split your Isa allowance between fixed-rate and easy-access accounts.
The Inheritance Isa is for widows, widowers and bereaved civil partners. They can inherit an extra Isa allowance — known as an additional permitted subscription — equal to the amount their partner had in their Isa.
Then there is the Help to Buy Isa for first-time buyers saving for a deposit where you can get a 25 per cent bonus from the Government. This is due to end next year, but there is demand for it to be extended. Junior Isas are a popular way to put away money for children until they reach 18.
The Lifetime Isa is for saving for a deposit for your first home as well as retirement and you get a 25 per cent bonus. However some experts have urged the Government to ditch the Lifetime Isa because they are too complex and there are high charges if you cash it in early.
The appeal of the basic cash Isa has been hit hard by the introduction of the personal savings allowance two years ago, where basic-rate taxpayers can earn £1,000 interest each year on cash in ordinary savings accounts without paying tax.
Cash Isa rates are also less competitive. The top one-year ordinary fixed-rate bond pays 2.03 per cent, while the best one-year cash Isa is nearly a quarter less, at 1.6 per cent.
Savers put £1.6 billion into cash Isas between April and August this year — just one-fifth of the £8.2 billion in the same period in 2015 before the new tax break came in.