Quick – get a TV ad done, it’s ISA season

It’s that time of year when marketing agencies fill their boots. Banks throw their money at media campaigns designed to tempt the public into filling ISA allowances before the deadline. If you’re drawn to this sort of advertising, there’s billboards, TV ads, newspaper ads and all manner of chatter on consumer websites.

You could argue it’s going to need a lot of publicity this year for the public to put their money in ISAs.

On the side of the ISAs is the public’s desire to hoard for a rainy day, an exasperation economists have expressed because they believe it is suppressing an economic recovery. Giving people confidence to spend money when the cost of living is rising is a conundrum the UK is grappling with, but hasn’t provided answers on so far. It makes sense in a way to at least have something spare to cover a spike in energy, petrol or food bills.

However, it has been well-documented that the recent budget was not one for savers and the extension of Funding for Lending has increased the availability of credit, as evidenced in the Bank of England’s latest stats. Secured credit to households in 2012 Q4 rose for the second successive quarter and credit for house purchases and remortgages rose again, with predictions for another increase in place for Q1 2013.

So borrowing is more attractive. Combine that with inflation at 2.8% in February and it’s going to need a tempting rate of interest for members of the public savvy enough to realise that money loses value in real terms at many of the advertised rates.

Of course, it’s down to each individual to decide whether there is an acceptable risk in locking money away in accounts that don’t meet the inflation rate. What price a rainy day?

At rebuildingsociety.com we believe there is more value in keeping money in the economy, and lending to creditworthy UK businesses is a way of doing that. In the market, rates are higher than ISAs (even after allowing for defaults and tax) for lenders and borrowers get cash to grow and create more jobs – at least giving these new employees the option of putting cash into ISAs, if they choose to do so.

We’ll be waiting to see whether deposits have increased substantially after the deadline. Ironically, if anyone can afford to fill their ISA allocation and still have plenty left over to clear debts and make alternative investments, it’s the media execs selling the advertising space to the banks for their ISA campaigns…

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