Today's Younger Generation Need More Help to Understand ISAs

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New research from Lloyds TSB Savings shows that whilst the nation is savvier than ever about Cash ISA’s, today’s younger generation of 18 to 24 year olds need more help to understand the benefits of an ISA.

Only three in ten (29%) 18-24 year olds know about the £5,100 limit and 17% of all respondents thought that the limit was still £3,600.

New research from Lloyds TSB savings shows that whilst the nation is savvier than ever about cash ISAs, today’s younger generation of 18 to 24 year olds need more help to understand the benefits of an ISA.

ISA Stands For Individual Savings Account
Awareness that ISA stands for Individual Savings Account has dramatically increased by20% over the last year. Just over two-thirds of people (69%) correctly identified that ISA stands for Individual Savings Account, compared to just under half (49%) 12 months ago.

A fifth (18%) of respondents thought that ISA stood for Instant Savings Account, increasing to one third (30%) of 18 to 24 year olds. In addition, one in twenty (5%) thought it was an Investment Standards Agreement.

85% of respondents also understand that tax is not payable on the interest earned in an ISA, although this awareness declines to 70% amongst 18-24 year olds. 16% of 18-24 year olds believe that you pay a ‘savings tax’ on ISAs.

Understanding Your ISA Limit
Whilst almost a quarter of people (23%) did not know that there is an annual limit on how much you can save into a Cash ISA, 44% knew the current Cash ISA limit was £5,100. This is four times higher than in last year’s survey when only 11% knew the current limits.

However, only three in ten (29%) 18-24 year olds know about the £5,100 limit and 17% of all respondents thought that the limit was still £3,600.

Looking at the new tax year from 6th April 2011, 23% know that the limit will increase to £5,340. Despite the figure falling slightly amongst 18-24 year olds to 16%, the awareness of the new tax year’s limit is well above the 9% recorded last year.

Common misunderstandings were that the limit would stay at £5,100 (14%) and almost half (47%) stated that they had no idea what the new limit was.

If You Don't Use It You Lose It
Seven in ten respondents (70%) know that if you do not pay in the full Cash ISA allowance during the year, you lose this allowance at the start of the new tax year and cannot top up previous years’ allowances. This is way up on the 41% recorded last year although awareness amongst 18 to 24 year olds is still this low (40%).

One fifth (22%) of respondents also wrongly believe that you can add funds to ISAs whenever you like, a misconception that is held by double the amount of 18-24 year olds at 43%.

Transferring Your ISA
Three-quarters of respondents (75%) knew that they can transfer their existing Cash ISA to a new account provider, falling to half (51%) of 18 to 24 year olds.

Of those wanting to transfer their ISA, seven in ten (73%) correctly would go to their new Cash ISA provider and ask for a transfer. This decreases to just over half (54%) of 18 to 24 year olds with a quarter (23%) stating that they would go instead to their existing provider and ask for a transfer.

In addition, 13% of 18 to 24 year olds wrongly believe that in order to transfer you simply withdraw the money and open a new cash ISA. Whilst it is right that you can withdraw money from some ISAs, savers would lose the tax benefit if they withdraw their money to open a new ISA. It is also worth noting that not all providers accept ISA transfers in therefore its beneficial to go through the correct ISA transfer process.

A fifth (20%) believe an ISA transfer should take place within seven days and 13% said it should be instant. 18% stated that it should not matter how long the transfer takes because certain providers, such as Lloyds TSB through its Cash ISA Commitment, start to pay interest from the first day a completed transfer application is received.

Holding An ISA
Two-thirds of respondents (67%) considered an ISA to be a good way to save money and the main reason for having one amongst 79% was its tax-free status.

Over half of respondents (52%) had an ISA, declining very slightly to 48% amongst 18-24 year olds. The most popular was a variable rate ISA at 61%, followed by a fixed rate ISA at 30%, falling to 44% and 22% amongst 18-24 year olds, respectively. Over one third (36%) of 18-24 year olds did not know what type of ISA they held.

Greg Coughlan, head of Lloyds TSB Savings products commented; "Whilst it is very encouraging to see how the nation is increasingly more ISA aware and now truly understands the benefits of Cash ISAs, it is obvious that there is still some confusion
amongst the younger generation.

“ISAs should always be a priority for savers due to their tax free status and savers of any age are welcome to come and visit our savings experts in branch to find out how they can make the most of their ISA allowance.”

Cash ISA Facts

  •     ISA stands for Individual Savings Account.
  •     In a Cash ISA, you don't have to pay income tax on the interest you earn.
  •     The current Cash ISA limits are £5,100. This increases to £5,340 on 6th April 2011 for the 2011/2012 tax year.
  •     If you don’t use your annual ISA allowance by the end of the tax year then this can’t be carried forward to the next tax year
  •     ISA savers have only two weeks left to make sure they use their full 2010/2011 tax year allowance.

Research carried on by ICM Research from 2nd to 3rd March 2011. 2002 adults were interviewed.

Lloyds TSB’s Cash ISA Commitments
The ISA Commitments offer ISA savers clarity and reassurance when choosing an ISA.

Lloyds TSB’s Cash ISA commitments read as follows:

  • If you transfer from another provider we’ll pay interest from the day we receive your completed transfer application – as long as your ISA is ready to move to us.
  • On the day you open your new Cash ISA its rate will match or beat our equivalent standard savings rate giving you all the tax free benefit.
  • When your ISA’s bonus or fixed term is coming to an end we’ll let you know, so you are always in control.

These key points are above and beyond the OFT recommendation to reduce ISA transfers to 15 days which came into effect at the beginning of this year.

ISA Products
Lloyds TSB has the following ISA products available to both new and existing customers and which accept transfers in from other providers.

Lloyds TSB Cash Saver ISA
The Cash Saver ISA offers a variable rate of 2.65% AER/ Tax free. This includes a fixed introductory bonus of 1.65% AER which has been extended from a year to 18 months from account opening. The account gives instant access and can be opened with as little as £1. Interest is paid annually on the
31 March.

Lloyds TSB Two year Fixed Rate Cash ISA
The Two Year Fixed Rate Cash ISA offers a fixed rate of 3.15% AER/Tax Free on all balances from £3000. Further deposits during the 2 year term up to the annual limit are also accepted. Interest is paid on the anniversary of the account opening and at the end of the term.

For further information:
Deepa Bose
Telephone: 020 7356 1405
Email: Deepa.bose(at)lloydstsb(dot)co(dot)uk

Claire Miller
Telephone: 01422 332833
E-mail: ClaireMiller(at)halifax(dot)co(dot)uk


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