'Sign of the times' over Isa allowance

More than half of us do not plan to use our full tax-free savings allowance this year. The annual amount people can save into a cash Isa was increased from £3,600 to £5,100 at the beginning of the new tax year in April.

But despite the rise in the amount people can save tax-free, 51 per cent of people who plan to save into an Isa say they will not use their full allowance, according to moneysupermarket.com.

A further 15 per cent who have previously had one of the accounts do not think they will save anything at all into an Isa this year. The group estimates that by failing to use their full Isa allowance, people could be missing out on up to 138 each in tax-free interest.

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Kevin Mountford, head of banking at moneysupermarket.com, said: "It is a sign of the times that many traditional Isa savers are deciding not to utilise their tax-free allowance this year.

"The current economic uncertainty and rising cost of living is really putting pressure on many households' disposable income and unfortunately it is savings that tend to suffer when times are tough."

Newcastle Building Society is currently offering the best rate on a cash Isa of 2.75 per cent, although savers have to give 120 days' notice in order to access their money.

Birmingham Midshires, the AA and Cheltenham & Gloucester are all paying returns of 2.7 per cent on instant access Isas.