Super Isa launch sees savings surge
Consumers strongly ramped up their cash savings in July as the new "super Isa", which allows more money to be put away tax-free, was launched, banks have reported.
The amount of money being put into cash Isas surged by £4.9 billion last month, suggesting that people were hanging on for the new rules to come into effect before putting their cash away, the British Bankers' Association (BBA) said.
It hailed the figures as an "encouraging" sign that Britain's savings culture is being rebuilt as the economy recovers.
Measures which were announced in this year's Budget have near-tripled the amount that someone can put away tax-free in cash. The introduction of the super Isas, or Nisas (new Isas) as they are also known, has meant that, from July 1, savers have received a more generous annual Isa allowance of £15,000, which they can hold in cash, stocks and shares, or any combination of the two.
The £4.9 billion put into Isas in July makes up more than half of the £8.7 billion flow into cash Isas seen over the first seven months of this year. The BBA said the earlier part of 2014 had generally seen weaker amounts being poured into Isas compared with early 2013.
BBA chief economist Richard Woolhouse said: "The banks have been working with the Government to help rebuild Britain's savings culture. So it's really encouraging to see evidence of savers taking advantage of the new cash Isa regime in the latest figures.
"Savings were a little low during the first half of 2014, but it seems people were just waiting until the new rules came into effect to invest their money.
"Initiatives like Nisa are steps in the right direction but today's household savings ratio is half that of our parents' generation. More still needs to be done."
The typical proportion of income saved by households has halved over the last 40 years, according to research released earlier this month by Lloyds Bank.
Lloyds found that households saved around 9.9% of their income between 1974 and 1984, against a backdrop of rising interest rates which reached double digits for the first time in 1979.
But following five years of the Bank of England base rate sitting at its historic low of 0.5%, households are now saving around 4.8% of their incomes into the bank and/or into pensions and shares.
Despite signs that people are regaining their appetite for saving, financial information website Moneyfacts said the average return on offer on a cash Isa has actually fallen since the new rules came into place.
On July 1, the average Isa rate on offer was 1.57%, but it has now fallen to 1.54%. A year ago, the average Isa rate on the market was 1.66%, Moneyfacts' figures show.
Charlotte Nelson, a spokeswoman for Moneyfacts, said: "With the new Isa limit increasing to £15,000 many would expect providers to be competing for savers funds; however, this has not been the case, with the market remaining relatively subdued."
She said that, with recent speculation over the possibility of the base rate increasing, "it may be wise for savers to opt for easy-access Isas so they are able to move funds around more freely if rates increase".
The BBA's figures also show that mortgage approvals are continuing to recover following the introduction of stricter lending rules at the end of April which mean that home-buyers and people looking to remortgage need to provide more evidence about their spending habits in order for lenders to be sure that they can truly afford their payments.
Some 69,489 mortgage approvals worth £10.5 billion were recorded in July, marking a 1.5% increase compared with June. The figures are still down on the 79,935 mortgage approvals seen in January.
The BBA said mortgage approval processes "have now settled" since the introduction of the new rules under the Mortgage Market Review (MMR), with around 40,000 approvals being made each month to home buyers, which is 12% higher than a year ago.
Looking at non-mortgage lending, the BBA said it has also seen an acceleration in personal loan and overdraft borrowing, which has grown by 2.6% over the last year.
The BBA said: "Higher loan demand continues to reflect rising consumer confidence and an improving economy.
"Net borrowing on personal loans and overdrafts is now showing annual growth after contracting for a long period."