ISAs Beat The Credit Crunch

In the last two quarters we've put almost 20% more into ISAs than we did in the previous year.

Is there anything rarer than good news about the economy? Here's one ray of sunshine though. The latest quarterly ISA statistics reveal that not only was 2007/08 a record, nearly all of the increase took place in the second half of the year as the credit crunch began to bite.

Here's a summary of the last two years' ISA subscriptions:

Overall I'd say these figures are pretty encouraging. Total ISA savings have continued to grow and are now 25% above the level they were three years ago. Once again it's cash ISAs that are driving the increase with an incredible 11.5m people opening an account last year - that's almost one in four of the UK adult population. The average amount saved was £2,200, which is pretty healthy considering that £3,000 was the maximum amount allowed last year.

Share ISA sales were flat and still way below the £16.8bn level achieved in 1999/2000. Still they held firm despite some rough stock markets conditions and are up by over a third on their low point of £7.6bn from three years ago. We heard a lot of anecdotal stories about poor share ISA sales a few months ago, yet when the final figures are revealed it appears the true picture is a little different.

What's most interesting is what happened to total ISA sales on a quarter by quarter basis. The first two quarters showed no change on the previous years but for the three months to 5 January 2008, ISA subscriptions rose 24% to £6.2bn. For the three months to 5 April 2008, they increased by 16% to £9.9bn. 

Given all we've heard about declining rates of saving and the gloomy economic news over this period I think these increases are quite astounding and show that the average UK punter is a lot more financially resilient than many people believe.

All of the increase was due to cash ISAs but the fact that share ISA subscriptions over these six months were equal to the previous year is also quite impressive considering the gyrations of the stock market at this time.

What's next for ISAs?

I reckon ISA sales are a pretty good indicator of the financial health of Middle Britain. They have been remarkably robust over the last nine years since they were introduced and provide an interesting contrast to the tales of woe we hear about our debt habits.

Undoubtedly debt is a real problem for many, but we now have around £140bn in cash ISAs which is two and half times the £55bn we owe on our credit cards. Not only that the amount we have in cash ISAs is growing strongly while the level of our credit card debt is the same as it was three years ago.

We won't find out what happened to ISA sales for the April to June quarter of this year for a little while yet. The period from April to June is the biggest three months of the year for ISA sales. Over half of all accounts are typically opened in this quarter and it normally accounts for 40% of the total amount we save over the year as a whole. 

However, this is the period where arguably the credit crunch really hit the wider economy, so we could well see a drop when compared to the same period last year.

Against this we now have higher contribution levels for ISAs (£7,200 overall and up to £3,600 in cash) so this could encourage us to put more money away. Like all savings accounts at the moment, cash ISA rates are looking very attractive. There's around three dozen accounts offering interest of 6% or above, which is 1% higher than the current base rate. For those that can afford to save, cash ISAs look set to remain the popular choice.