Fewer people are applying for ISAs as the credit-crunch bites and consumers decide to pay off debts rather than save money.

Due to laws restricting the tax-free savings account to one cash ISA per person per year, people have traditionally flocked to banks at the beginning of the financial year in April to open an account. Last year, when the economy was still growing and savings rates were above 6%, the level of demand for ISAs was so high that many consumers experienced a delay in opening an account.

But a report from the Co-operative Bank suggests that this year’s “ISA season” will be a quiet one. According to the bank, the number of people taking out an ISA this year is due to drop by 13% to just 27%, compared with 40% a year ago. Worsening economic conditions and recent cuts in the official interest rate from 5% to 1% by the Bank of England have put consumers off saving, knowing that they will reap scant returns.

Stocks and shares ISAs, which can also be taken out each financial year, are set to fare even worse. According to the Co-op, just 14% of ISA holders are likely to opt for the stocks and shares option, with the rest taking out a cash ISA instead.

Zack Hocking from the Co-op said “These figures are concerning. Not only do they confirm that many people intend to let their ISA allowance fall by the wayside, reluctance exists to invest in the stock market at a point when many industry experts are saying it could be a great time for investors with a longer-term horizon.”

This entry was posted on Tuesday, February 24th, 2009 at 3:50 pm and is filed under Banking, Savings, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.