Low rates on Individual Savings Accounts (ISAs) mean that almost half of Brits will not bother to use their tax free allowance in the next tax year.

According to the latest research from Barclays, 46 per cent of people have no plans to invest in an ISA for 2009/10, despite the fact that most people expect the base rate to rise to 1.75 per cent by the end of the year.

Barclays research reveals that despite the tax-free nature of ISA investments, only slightly more than half of UK consumers are going to take advantage of them.

The main reason why people are not planning to invest into cash ISAs is low rates, while potential investors are avoiding investment ISAs due to ‘stocks and shares volatility’.

But Barclays says this is a short-sighted view, arguing that investors can make great returns on ISAs, even in tough economic times, and that utilising an ISA can be key to a more secure financial future.

“The downturn has created some fundamental shifts in consumer thinking,” explains Barclays’ Alison Tattersall,” and I think we’re seeing a ‘batten-down-the-hatches’ mentality – reduce debt, don’t spend, and then maybe consider saving.

“What’s underappreciated is that in a low-inflation environment, possibly even a deflationary one, an ISA is actually capable of delivering real benefits that we wouldn’t see in a high-inflation economy,” she said.

Kevin Mountford, head of banking at moneysupermarket.com, agrees, claiming that “diligent savers can put away a tidy sum if they regularly invest in an ISA.”

“Those with savings would be wise to make use of their cash ISA allowance,” he said. “Most accounts allow you to withdraw cash without any loss of interest or tax implications should you need money at a later stage.

“Someone investing their full cash ISA allowance for each of the past 10 years would have around £41,600 now, of which £11,000 would have been interest alone. This would leave them £2,700 better off than basic rate taxpayers saving the same amount outside an ISA.

“It’s not too late for anyone with spare cash to put some away in an ISA. People have until the end of the tax year – April 5 – to squirrel away up to £3,600. Those who have already invested can put some more money aside from April 6 onwards.”

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© Fair Investment Company Ltd