ISAs and Invective: A Hiding to Nothing?

Mar 21, 2012   //   by Keith McDonald   //   Banking and Savings Accounts, Commentary / Editorial  //  Comments Off on ISAs and Invective: A Hiding to Nothing?

Over the last few weeks, I’ve been circulating regularly to keep myself informed about all the recommendations for the new ISA season, conscious that Which4U has been sporting a different approach to most other financial and media outlets.

I’ve also caught sight of those hard-to-miss stories about trolling. I’m not suggesting that it’s particularly prominent in the nondescript field of personal finance, but it has been interesting to note the abrasive nature of public response to ISA reporting – especially across the tabloids.

A number of readers are choosing to interpret the attention given to ISAs as a personal affront to themselves and/or others who don’t amass thousands in savings. And vented fury against banks often becomes an impromptu personal invective.

The disdain towards the financial system is understandable. There’s numerous reasons for concern:

  • The low base rate, unlikely to rise for a while, has restricted savings rates and will continue to do so for the foreseeable future.
  • A high inflation rate over the past two years has meant that in addition to wages rising below the cost of living, returns on savings have also been pitifully short of the mark.
  • Although too early to say conclusively, it may be that many were pressurised and panicked into pursuing inflation-linked savings accounts prematurely (as Which4U was keen to note in October).
  • With banks offering temporary bonus rates of most instant-access savings products, savers have been left jumping through hoops, and in some cases, fighting quicksand, to maintain any kind of modest return on their money.

Which4U’s own comment base is remarkably productive. Perhaps we escape the malice simply because we’re not a mainstream tabloid. Nevertheless, I have a modicum of prevaling sympathy for tabloid tones of belligerence and enthusiasm.

It’s evident that this is still no optimum time for savers, and journalists are easily accused of making too big a deal out of “nothing rates” as if the delapidation of conditions for savers is entirely their fault.

But you’ve still got to sell an idea, even if it’s merely the best of a bad bunch. We must grit our teeth, adjust, and make the best of it. Apathy over proactivity only means that we lose out more; banks know this better than anyone.

Why does ISA season deserve attention?

  1. For one, it’s a time when banks compete. ISA rates may hardly seem explosive, but if inflation does continue its current trajectory towards the MPC’s 2% target, tax-free returns of 3%+ will not prove quite the washout they have long seemed to be. Furthermore, ISAs offer the best returns in most cases for instant-access savings, and almost invariably on fixed-rate products.
  2. For another, the public know it matters. Polls across the board show that, despite a lack of in-depth knowledge of ISAs, almost 80% believe that it is important to save regularly and that tax-free ISAs are the most efficient way of doing so. Savers in Wales have increased their ISA savings by 38% since the inception of the economic crisis (Principality).
  3. Thirdly, savers are losing out on millions by not making the most of their cash ISA allowance. Admittedly, the quoted amounts are wide, varied, and confusing: to unbiased, we’re losing £376 million; to Nationwide, we’re losing £500 million; to uSwitch, we’re losing £182 billion. It takes some careful analysis to pinpoint the argument in each case.

The two larger figures – from uSwitch and Nationwide – are arguably less relevant, because they calculate unused capacity. The Nationwide research has investigated how much is lost by all existing cash ISA savers not maximising their full allowance. The uSwitch data extends this to include all adults without ISAs, calculating an estimate of the entire unused capacity of the UK’s tax-free allowance.

And such headlines will frustrate readers when not used carefully because they could carry implicit assumptions that people could and should be saving more when many are not able to do so. None of this potential is waged against the actual.

The smaller figure, on the other hand, is. Unbiased’s research provides an estimation of how much, on average, savers could be earning if their existing taxable savings were moved to a non-taxable ISA. What’s more, it assumes an industry average of just 0.5%, which is considerably below the market-leading cash ISAs such as the AA Access (3.5%) and the Cheshire BS Direct ISA (3.35%). There’s plenty to be made just by saving more efficiently.

It’s still not a clear-cut science. There are many practical reasons why standard savings accounts might take priority over ISAs. People are currently having to deplete ISAs to pay bills. Many ISA accounts are without cashcards, making swift access to funds more difficult (though e-ISAs should allow funds to be transferred to and from accessible accounts).

It’s the principle rather than the law, however. Where savers could be making more from exactly the same funds, there’s a prerogative to draw attention to that.

Granted, it’s not always done tactfully; but attention towards ISAs is not designed to exclude or disparage those who are not currently saving. It’s designed to support the many millions that hope to better their savings using whatever means available.

 

Keith McDonald
Which4U Editor

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