A third of the UK’s average annual income is being invested in Individual Savings Accounts (ISAs), according to Halifax.

Using the data it holds of its own customers’ cash ISA savings, the average ISA balance is £7,782, just under a third of the average annual earnings figure of £26,075.

Halifax savers in the Derbyshire Dales had the highest average cash ISA balance at £10,476, while the lowest average ISA balances were found in the London boroughs of Hackney and Southwark.

Halifax economist Nitesh Patel said: “It’s great to see UK savers are taking advantage of the tax free benefit of an ISA by investing just under a third of their income.

“Frustratingly though, whilst ISAs have been available for over a decade, savers are still not making the most of their savings by using their full annual ISA allowance with the UK average of just £7,782 being saved, which is only 1.5 times the annual limit.”

ISAs are savings accounts which allow a certain amount to be saved each tax year without incurring any tax on interest earned.

Earlier this month the government confirmed that the annual limit for savings will increase in line with the RPI measure of inflation from 6 April 2011.

The RPI level for September will be used but the figure will be round to the nearest multiple of 120; this will allow people who make monthly savings payments to calculate these more easily.

The cash ISA limit for the 2011/12 tax year will be £5,340. The overall limit for stocks and shares ISAs will be £10,680. The full amount can be invested in stocks and shares or half in cash and the remainder in stocks and shares. The current annual limits are: £5,100 and £10,200.

The age profile of ISA savers at Halifax showed the 75+ age group had the highest average ISA balance of £13,912, with the lowest average balance in the 16-24 age group at £1,848.

© Fair Investment Company Ltd