Impact on banks of the removal of tax on up to £1,000 of savings income?

JennT_2

Hi,


Does anyone have any information on what impact the removal of tax on up to £1,000 of savings income will have on banks? I'm writing an article for Uni on this and keen to know from a baking perspective the impact for them.


Will they still offer ISAs? What will be the main difference between an ISA v savings account if tax doesn't now come into it unless a high earner?


Thanks


Jenn

HappyMJ

I don't have a crystal ball. The answer really is "we'll see what impact it will have soon".

ISA's offer much more than £1,000 of income per year. There will still be a demand for them.

tiger_eyes

JennT wrote: »

Does anyone have any information on what impact the removal of tax on up to £1,000 of savings income will have on banks? I'm writing an article for Uni on this and keen to know from a baking perspective the impact for them.

I imagine cakes will continue to rise regardless...

JennT_2

I understand that however from basic research it looks like cash ISAS will become pointless for most people who have a salary or pension income of less than £42,700 – unless they have very large savings. I'm keen to explore that further in my article and get some views on what banks will do to stop a massive drop in ISAs? Are ISAs more valuable to a bank than savings accounts?

El_Torro

I don't see why ISAs would become any less prevalent than they are now. Having said that though it's already worth putting your savings in high interest current accounts rather than Cash ISAs, even if you're paying 40% income tax. This change will only make that more obvious.

The cynical side of me thinks that current accounts will have their interest rates reduced to compensate for the fact that the customer isn't paying interest any more. Only time will tell though.

I don't think that people who currently rely on Cash ISAs will remove a significant amount of money from them, banks will continue to offer poor rates on these.

jimjames

HappyMJ wrote: »

I don't have a crystal ball. The answer really is "we'll see what impact it will have soon".

ISA's offer much more than £1,000 of income per year. There will still be a demand for them.

I wouldn't say ISAs offer "much more" than £1000 of income. When the max per person in cash ISAs is under £100k then most people are looking at around £1000 or so as maximum interest from them.

JennT wrote: »

I understand that however from basic research it looks like cash ISAS will become pointless for most people who have a salary or pension income of less than £42,700 – unless they have very large savings. I'm keen to explore that further in my article and get some views on what banks will do to stop a massive drop in ISAs? Are ISAs more valuable to a bank than savings accounts?

I can't see any reason why an ISA is more valuable other than people keeping money in them at pitiful interest rates without checking.
I agree that cash ISAs will be even more pointless than they are now and I can't see why a bank would care. S&S ISAs will continue to be worthwhile.

Linton

Why would a bank care about which type of account their customers put their money into? Perhaps a bigger impact on the banks is the reduced admin arising from the removal of tax deduction at source which comes as a side effect of the £1K tax allowance.

jimjames

Linton wrote: »

Why would a bank care about which type of account their customers put their money into? Perhaps a bigger impact on the banks is the reduced admin arising from the removal of tax deduction at source which comes as a side effect of the £1K tax allowance.

I guess the impact may be that there is also less admin with having to report NI details etc for ISAs but it's probably not volume related so only beneficial if cash ISAs stop completely.

Archi_Bald

Linton wrote: »

Why would a bank care about which type of account their customers put their money into?

Banks could perhaps care more about the cash ISA savers as they provide them with cheaper money than those who are switched on and use current accounts and regular savings accounts.

People who are happy to save in cash ISAs will probably also be a lot more gullible when it comes to selling them loans, mortgages and credit cards.

Archi_Bald

OP, I think you can find a lot of clues in some statistics:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/456379/ISA_Statistics_Release_August_2015.pdf

http://www.scottishwidows.co.uk/extranet/working/about/reports/investment-report

pafpcg

You could also consider the impact of an improvement in the net rate of return from savings in banks & building societies over investment in other fields such as equities and property. I suspect that any change will be so small as to be within the margin of error of any measurement parameter.

As ArchiBald suggests, look at the statistics - what's the number of individuals who will benefit from the increased allowance? The number who benefit from the full allowance will be small and those who change the balance of their investments to take advantage will be even smaller.....