Fifth of Isa savers 'maxing out' their annual allowance

Growing numbers of determined Isa savers have "maxed out" their annual allowance in recent years, research suggests.

More than one in five (21%) Isa savers surveyed said they managed to put away the maximum allowance in the 2015/16 tax year, according to Nationwide Savings.

This is up on the 18% of savers who said they used their full allowance in 2014/15.

Men, who still often tend to be the main breadwinners, were found to be more likely than women to be using their full Isa allowance, with around one in four male savers surveyed saying they used their full allowance in the last tax year.

Although savings rates have generally remained poor in the low interest rate environment, Isas have been made more flexible in recent years, with savers now being able to put all of their annual allowance in a cash Isa, all in stocks and shares, or a combination of the two. Previously, only up to half of the annual Isa allowance could be saved as cash.

Traditionally, Isas have also had tax advantages over other accounts. But all this changed on April 6 - with the introduction of the personal savings allowance.

The new allowance means basic rate taxpayers can now earn up to £1,000-worth of interest tax-free and higher rate taxpayers can earn up to £500 in interest in the same way. The allowance has taken 92% of savers - or nearly 17 million people - out of savings tax altogether. Money held in Isas does not count towards the personal savings allowance.

Despite the new allowance, Isas can still be a good idea for some people as once money is in an Isa, it is ring-fenced from the taxman until the saver decides to withdraw the cash. For some people, a pay rise could also halve their personal savings allowance, if they are pushed into a higher tax bracket from being a basic rate taxpayer. And any interest rate rises could see more people being pushed over the personal savings allowance as the returns on their cash pots start to get bigger.

Nationwide's research also found many people are in the dark about another recent change, which allows providers to make Isa products even more flexible.

More than three in five (61%) of Isa savers were unaware of new rules which mean providers can allow savers to withdraw money from an Isa and replace it in the same tax year, without this impacting on their annual Isa allowance.

Asked if these new rules would make them more likely to use an Isa, nearly a third (31%) of savers agreed they would be more inclined to do so.

Nearly one in four (23%) savers said that after having previously taken money out of their Isas, they had not had enough of their annual allowance left to put the same amount of money back in at a later date.

The annual Isa allowance will increase from its current level of £15,240 to £20,000 from April 2017.

Tom Riley, Nationwide Building Society's head of savings, said: "Isas remain an option savers should consider in the new world of the personal savings allowance and it's good to see from these new figures that not only are Isas front of mind, but also that many savers are making the most of their annual Isa allowance."