- Cash ISA flows stable ahead of Budget according to data released by the Bank of England today
- A laissez-faire attitude makes sense for many
- A preference for highly liquid cash seems to be at play, irrespective of rate and tax status
- Putting money in a Cash ISA ahead of the budget is very different to withdrawing your pension tax-free cash
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“The looming Budget has so far failed to spark a dash for Cash ISAs, according to the latest set of figures released by the Bank of England. Despite warnings that the Chancellor may seek to cut the annual allowance, savers only sheltered £2.4 billion in Cash ISAs in September, the same amount as in August, and down from £3.5 billion in the same month last year.
“For many people a laissez-faire attitude probably makes sense. The vast majority of Cash ISA savers don’t use the full £20,000 allowance, and may therefore be unperturbed by the prospect of a reduction, even quite a dramatic one. It may also be that Cash ISA savers are more concerned with rates rather than the allowance, with the average interest paid on variable rate Cash ISAs falling to 2% in September, down from a peak of 3.4% in October 2023 (Source: Bank of England, excluding conditional bonuses).
“Then again, money also seems to be flowing into instant access accounts paying unimpressive rates of interest. Bank data shows savers put £5.8 billion into these accounts in September, the highest level this year, despite accounts paying only 1.8% on average. Perhaps this speaks to a preference for highly accessible cash, irrespective of rate or tax status.
“As we get nearer to the Budget, the klaxons warning about the Cash ISA allowance will probably get more shrill, and we may therefore see more buying now while stocks last. On the face of it there’s a similarity here with people taking their pension tax-free cash out ahead of the Budget, in case the Chancellor clamps down on it.
“However taking tax-free cash out of a pension is irreversible, and removes it from a tax shelter where it grows free from income and capital gains tax. By contrast, money paid into a Cash ISA can be taken out at any time, or transferred to a Stocks and Shares ISA, and actually keeps the taxman at bay. The motivation behind these two activities might be the same fiscal event, but the outcomes are very different.”
