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2 May 2018

Average Isa now worth over £20,000: how do your savings measure up?

Find out if you save as much as your peers

The nation's savings habits have been revealed by new HMRC data encompassing more than 22 million people. So how do your savings compare to those in a similar age group or income bracket?

Overall, the UK's average Isa savings clocked in at £21,339 - but this varies significantly depending on the savers' age, income and circumstances.The new data, which Isa providers are required to share with HMRC each year, looks at holdings within all adult Isas in the 2015-16 tax year.

To gauge where you fit in, Which? has looked into the data to see how people have been using their Isas, specially the age and salary trends.

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Isa savings by salary band

The median income for Isa holders is between £10,000 and £19,999, the HMRC data reveals.

This is significantly lower than the median gross annual earnings for that year, which the Office for National Statistics stated to be approximately £28,200. Suggesting that many below-average earners are making efforts to save into an Isa.

Unsurprisingly, the Isa accounts of those on lower incomes tend to have a smaller overall value. But there are still 118,000 people earning between £0-£4,999 annually who reportedly have Isas worth £50,000 or more.

As for those earning the median wage - falling into the £20,000-£29,999 category - 44% have saved less than £5,000 into their Isas.

The number of Isa holders earning below £150,000 is significantly smaller than other income groups. But of these, 42% have £50,000 or more saved, which is a far higher percentage than any other earnings group.

The graph below illustrates how many people in each salary band have an Isa, and how much they had saved into it by the end of the 2015-16 tax year.

Isa savings based on age

As expected, fewer people under the age of 25 have an Isa, and the overall value of each person's Isa holdings increases with age.

The average value of Isa savings in the 25-34 age range was £5,840, compared with an average of £42,530 for those who are 65 and over.

The graph below shows the average amount people had saved in their Isa at the end of the 2015-16 tax year, split by age range.

However, even between the ages of 45 and 55, almost half of Isa holders have less than £5,000 saved into it. After this, saving larger sums becomes much more common.

Encouragingly, 54,000 of 25 to 34-year olds already have £50,000 or more saved in their Isas. This number grows to 1.8m for those aged 65 and over, when many in this age group are looking towards retirement.

What are the best cash Isa rates?

For the highest rates, you could consider committing to a longer term fixed-rate account, or a regular saver account. The table below shows the top rates for each type of Isa.

The highest rate currently on the market is the five-year fixed-rate cash Isa from United Bank UK, offering 2.65%. There's a minimum opening deposit of £2,000 to open the account, with a maximum of £1m.

Interest is paid monthly, but if you withdraw money before the five-year term is up you'll be subject to a loss of 365 days' gross interest.

Elsewhere, Shawbrook Bank's five-year fixed-rate cash Isa is an online account offering 2.3% AER or balances between £5,000-£250,000. Early withdrawals will lose 360 days' interest.

How do Isas work?

Everyone has an Isa allowance, which is £20,000 for the 2018-19 tax year. This is unchanged from the 2017-18 tax year.

This means you can pay in up to £20,000 either in one cash Isa, one stocks & shares Isa or one innovative finance Isa, or you can split the allowance between several types of Isa.

You can also factor in the maximum allowances of £4,000 for a lifetime Isa and £1,200 for a Help to Buy Isa, which come out of the £20,000 total.

While you can hold several of the same types of Isa - for example, you can have as many cash Isas as you like - you can only open and pay into one in each tax year. This means that if you have a cash Help to Buy Isa that you pay into this tax year, you won't be able to pay into another cash Isa until the 2019-20 tax year.

Breaking this rule, or going over your Isa allowance, will result in HMRC reclaiming the extra money.