Sales of Individual Savings Accounts (ISAs) were £503m in May, reflecting the continuing popularity of ISAs as a savings option.
The new ISA sales figures, from the Investment Management Association, showed a major increase on the sales levels of ISA accounts in the previous May, which totalled £360m.
The government’s announcement in the June 2010 budget that ISA allowances will increase in line with inflation have boosted further the popularity of the ISA as a tax-free savings option. Any interest paid on ISA savings in a cash ISA is not taxed, making ISA accounts a more attractive option than bank savings accounts.
The ISA option has already been taken up by 37% of households in the UK, according to Halifax.
Increased ISA savings limits
The annual allowable limits for tax-free savings in ISA accounts now stand at £10,200 in 2010/11.
ISAs come in two variations. ISAs provide tax-free growth on savings in an ISA cash account, or tax-advantaged growth in stocks and shares ISAs.
ISA savers can have both types of ISA accounts, investing up to half their total allowance, or £5,100, in a cash ISA, which combines the tax-free benefit with the safety and security of a bank or building society account.
ISA savers can also use their ISAs to invest in the stock market, by opening a stocks and shares ISA, where they can invest up to the remaining £5,100 of their ISA limit.
ISA savers who do not wish to have a cash ISA can place their full £10,200 ISA savings allowance in the stocks and shares ISA, although the reverse does not apply - the full £10,200 amount can not be placed in a cash ISA. The limit for ISA cash savings is capped at £5,100.
Of those shopping around for the best ISA deals this year, 81% will be opting for stocks and shares for their ISA savings, according to a recent survey by Barclays Stockbrokers. This is because interest paid the ISA cash accounts has been driven down by the currently low Bank of England interest rates, making ISA cash accounts less attractive then the stocks and shares ISA, in the current economic climate.
