EDITOR’S BLOG: Saving graces and the ISA effect
A friend of mine recently asked me for advice on savings accounts and which product would be the “best” one for her to make an initial deposit of £2,000.
I’m not a financial adviser and this is one of those “how long is a piece of string?”-type queries that usually beg more questions than answers. What I did say, however, was that she might usefully look into individual savings accounts – or ISAs – and see what was on offer in the tax-free arena.
Now, ISAs have had a mixed press in this publication and quite rightly so. When they were launched with great razzmatazz by New Labour in 1999 they were intended to “encourage saving” and to simplify the process for people who are not versed in the arcane mysteries of financial jargon.
However, for something purporting to be simple, the rules are more complex than Einsteinian physics and what with mini and maxi ISAs, and the split between cash and stocks and shares versions, the message got lost somewhere in the launch.
This is not to say that ISAs are not popular, because they are, but only amongst those who understand the issues and who take effective action. What has not happened, though, is the intended stampede of people who do not regularly save, and who really should do so, if only for the inevitable rainy day.
Indeed, when Your Money magazine did a survey on ISA awareness a few years later more than one person thought that the ISA was the American space programme and another that it was a kitchen implement to make your cakes look more attractive. These answers – and many others like them demonstrating utter cluelessness on the part of our survey sample – showed just how resistant many people are to financial education.
But don’t let’s get too depressed – at least for the moment. A recent press release sent to me from unbiased.co.uk, the organisation promoting independent financial advisers, carries the cheering headline “UK consumers break savings records”, which trumpets the fact that we saved about £25bn more in 2006 than we did in 2005.
“UK consumers put away a spectacular £136bn for a rainy day, up £25bn on the previous year,” runs the announcement, giving rise to reasons to be cheerful – one, two, three. This is enhanced to utter joy when it is further revealed that between October and December 2006, we put away £39bn, a 16% increase on the previous quarter and the highest quarter last year.
Brilliant, but David Elms, chief executive of unbiased.co.uk, then chucks the proverbial bucket of cold water over the partygoers. “For every £1 consumers save they are borrowing 40p,” he says dolefully. “It’s good news that they are saving so much, but the fact remains that much of the good work is wasted because debt continues to rise.”
And here lies the nub of the UK savings arena. There are people, like my friend, who have a bit of spare cash and would rather do something sensible with it rather than blow it down the pub or the bookies.
However, some of these folks will undo all their good work by spending on their credit cards or whatever at the same time as they are putting money into a savings account. Silly people, but that’s human nature I suppose.
Add into the mix all of those who will never save and those who may have a bit of spare cash and want to do something positive with it – they may not know what exactly – and you have the typically British patchwork quilt of expectations and limitations, knowledge and ignorance, that characterises our grasp of financial matters.
OK, look, I’ll stick my neck out. If you have a few quid to put away then check out ISAs. Your interest grows tax-free and if there’s one thing we can all agree on it’s to minimise what we give the taxman. And don’t forget: you only have a few more weeks to get one for this tax year. Go for it, because you only have something to gain.