Britons have been issued an ISA warning ahead of the cut to the tax-free savings allowance from Chancellor Rachel Reeves next year.
During her 2024 Budget statement, the Chancellor confirmed the amount savers can deposit into the savings product without paying tax will fall from £20,000 to £12,000.
This comes as research from Paragon Bank suggests millions of pounds in savings are languishing in accounts that generate little or no return, while the tax-free benefits of cash ISAs remain largely untapped by British savers.
HM Revenue and Customs (HMRC) figures from the 2022/23 tax year reveal that merely 141,000 individuals hold more than £100,000 within cash ISAs.
Savers have been issued an ISA warning ahead of Rachel Reeves changes
|GETTY
In stark contrast, over 677,000 accounts contain equivalent sums in far less advantageous locations, analysis from Paragon Bank found.
More than 341,000 current accounts hold balances exceeding £100,000 whilst earning zero interest, and a further 336,000 non-ISA savings accounts with similar amounts generate returns of just 1.5 per cent or below.
The data, obtained through a Freedom of Information request submitted by Paragon Bank, demonstrates that accumulating substantial ISA balances remains exceptionally rare.
Slightly more than 7,000 savers had amassed over £200,000 in their Cash ISAs during the same period, whilst a mere 370 individuals crossed the £300,000 mark.
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The ISA allowance resets each year on April 6, when a new tax year begins | GETTYAt the uppermost levels, the numbers become increasingly small, with just 80 people holding balances surpassing £400,000, and only 30 savers across the entire country managed to exceed £500,000.
These statistics highlight how few Britons have fully exploited the tax-free wrapper since ISAs were introduced in 1999. Current accounts holding more than £100,000 collectively contain approximately £68billion earning nothing whatsoever for their owners.
Meanwhile, non-ISA savings accounts in the same bracket total around £68.8billion, despite offering meagre returns of 1.5 per cent or less.
Government projections indicate that tax on savings interest held outside ISAs will reach £6billion during the current tax year. This represents a threefold increase from the £2 billion collected in 2022/23, driven by rising interest rates.
Examples of tax free Isa earnings in the UK if you had £20,000 in the Isa | GBNAndrew Wright, the head of Savings at Paragon Bank, said: "This data underscores the fact that, despite the generous annual ISA allowance, the vast majority of savers either do not contribute the maximum each year or withdraw funds over time, preventing their pots from growing substantially."
He added: "Savers under the age of 65 are expected to only have until April 2027 to continue to utilise their full £20,000 cash ISA allowance, from then onwards it will be just £12,000.
"Furthermore, now that the tax thresholds have also been frozen as part of the Budget and tax on savings held outside ISAs due to increase, it's more important than ever for savers to maximise their tax-free savings.
"Therefore, I urge savers to review their accounts and make the most of the ISA allowance."