UK savers poured record sums into ISAs last year, with cash deposits surging amid higher rates and fears of allowance cuts. Rachael Griffin, tax and financial planning expert at Quilter, warns that while households chase short-term safety, inflation and punitive LISA rules highlight the urgent need for reform to turn record savings into lasting financial security.
Rachael Griffin, tax and financial planning expert at Quilter:
“The latest HMRC savings statistics highlight both the resilience of UK savers and the flaws in the current system. In 2023/24 households subscribed a record £103 billion into ISAs, with cash ISAs alone accounting for almost £28 billion more than the year before as higher rates tempted people back into deposits. But these figures don’t yet capture the frenzy of cash ISA ‘stuffing’ in early 2024/25, when rumours swirled that the Chancellor might slash the cash ISA allowance ahead of the Spring Statement. Billions were hurriedly parked into cash, and the next release is likely to show another surge.
“Higher interest rates have clearly made cash ISAs more appealing, offering returns not seen for over a decade. But this is a temporary reprieve. Rates have already started to drift lower and, with the Bank of England expected to hold today before eventually cutting, the generous cash deals of the past year are unlikely to last. Savers need to remember that cash provides short-term safety but long-term stagnation. Inflation will steadily erode the value of money left sitting in cash, whereas investments stand a far better chance of beating inflation and growing wealth in real terms.
“Despite the dash to cash, stocks and shares ISAs still make up nearly 59% of total ISA holdings, underlining their central role in long-term financial planning. Some of the record sums now languishing in cash should be converted into investments if savers are to achieve genuine financial security. Savers often risk confusing safety with security, a mistake that can be very costly over time.
Lifetime ISAs
“The Lifetime ISA data reinforces the need for reform. Over 87,000 first-time buyers used their LISA to purchase a property in 2024/25, but at the same time 129,200 people were forced into unauthorised withdrawals, losing an eye-watering £102 million in charges. That is up from £75 million the year before and almost twenty times the level seen in the product’s early years. These are not reckless savers but people under financial pressure, penalised by a 25% charge that strips away not just the government bonus but part of their own contributions too.
“The LISA is a muddled product, attempting to be both a house deposit account and a retirement plan but failing to do either adequately. The £450,000 property cap is outdated, the age limits are no longer realistic, and the penalty continues to cause resentment, confusion and undermines confidence in saving.
“These statistics should be a wake-up call. Savers are doing their bit, but policy must keep pace. Reforming the LISA by cutting the withdrawal charge to 20% so that only the bonus is lost, and modernising the property cap and age rules, would make it fairer and more effective. More broadly, moving towards a simpler ‘One ISA’ regime would strip away needless complexity and help ensure record savings are put to work for the long term. The government has a genuine opportunity to simplify the landscape and make it easier and more attractive for people to both invest and save.”
