At the end of March a YouGov investigation (based on a survey of 2,070 people) found that 29% of UK adults have no understanding of how Individual Savings Accounts (ISAs) work and only 9% claimed to fully understand them.
Introduced in 1999, ISAs are tax-free savings accounts. The amount that can be saved rises in line with the Retail Prices Index whose official figures are released each September.
There are two kinds of ISAs, cash and stocks and shares. The total amount of tax-free cash savings that can be claimed is currently £5,640; this is available to anyone over the age of 16. The overall subscription limit, which may include stocks and shares, is £11,280. However, only individuals aged 18 or over are eligible for stocks and shares ISAs, and these saving limits are connected to this particular tax year and cannot be carried over into 2013-2014.
A variable cash ISA will allow a customer to remove money without charge, but they may charge substantially if the account is closed down. A fixed rate ISA can offer higher interest rates but the money is then unavailable for a set period of time.
The tax-free interest can be extremely beneficial for many savers but nearly a third of people are ignorant of the possibilities. Banks must enlighten the public about ISAs in order to encourage participation. One idea highlighted by the YouGov survey is create a dedicated online site, a service that would apparently encourage 26% of those surveyed to set up a stocks and shares ISA.