Really British households are on the tiger saving sort of thing. In fact, they put a record £103 billion into tax-advantaged Individual Savings Accounts (Isas) in the 2023-24 tax year. This comes as a significant jump from last year, when home owners only paid £12.4 million. This increase is largely driven by an increasing global “dash for cash.” There is a great deal of hot air regarding potential changes to the cash Isa allowance.
Lifetime ISAs (LisAs) acquired phenomenal popularity. By comparison, their use jumped 28% in just the first half of 2023. Almost a million accounts helped achieve an unprecedented investment – £2.3 billion. Just with the Lisa-style scheme it can go towards those saving for their first home or their retirement. You can take distributions, but only in certain circumstances. Savers can access their funds if they are purchasing a first home valued at £450,000 or less, if they are aged 60 or older, or if they are terminally ill with a life expectancy of under 12 months.
Withdrawals taken for any other purpose is subject to a severe 25% penalty tax on the amount withdrawn. New figures for the 2024-25 fiscal year show that savers have faced more than £100m in early access fees. These were penalties that resulted from early withdrawals.
Saving is very much in the air right now, said Rachael Griffin, a financial capability expert. She lamented, “These numbers don’t even reflect the peak of cash Isa ‘stuffing’ in early 2024-25, when panic spread that the chancellor would cut the cash Isa limit. Billions were hurriedly parked into cash.
Savers are taking advantage of the 25% government bonus on all deposits into Lisa accounts. This annual bonus provides a significant jumpstart to their savings potential. The new Lisa product allows people to pool savings for buying a home and retirement without having to set up separate accounts.
Helen Morrissey, another financial analyst, emphasized the importance of Lisas: “The Lisa has an enormously important role in helping people to save for their first home or retirement.” Despite this positive development, she highlighted concerns about rising costs associated with early withdrawals: “The latest data shows early exit penalties continue to soar, with savers being clobbered with £102 million of early exit charges. This is up from £75 million the previous year.”
Lisa 3 activity remains at its highest levels ever. During the last tax year – to April 2022 – households opened 15 million Isas, the most in over 13 years. Financial analysts point to this growth as a result of increased economic uncertainty. It further speaks to a bigger trend of consumers growing more financially savvy.
Moreover, the trend towards cash ISAs has skyrocketed. Billions overnight flooded into these accounts largely out of concern for regulation changes coming down the pike that would limit the use of cash savings. Griffin observed that “rates are already beginning to trend downwards,” which could play a role in affecting savers’ choices in the months ahead.