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Individual savings accounts (Isas) are one of the UK’s most popular savings products. Almost half of all adults in England have one, and across the UK over £400bn was sheltered in 24.4m accounts at the end of the 2013 tax year.

But they are not so good that they couldn’t be better. For a start, too much money goes into cash, where it is less effective. For a higher-rate taxpayer, sheltering cash for a year in an Isa yields an extra £50 compared with a best-of-breed savings account – useful, but hardly transformational.

“It’s natural to move to a cash Isa when you first start out investing,” notes Mark Till, head of personal investing at Fidelity.

But where Isas really score is for investment, where income from dividends and coupons along with capital gains can roll up free of tax. The investment limit for stocks and shares Isas is also double that of cash Isas.

Yet despite these advantages, the market values of cash Isas are roughly the same as those of stocks and shares.

In the past tax year, 80 per cent of Isa subscriptions went into cash Isas, and Isa fund sales in 2013 – while better than 2012 – were behind 2010 and 2011 levels.

Although the Isa savings habit is commendably spread across income groups and geographical areas, as a nation we are still not making the most of this tax break.

Only 7 per cent of savers contributed the maximum to their account in the 2010/11 tax year, and 40 per cent of savers put in less than £2,000.

Even higher-income groups are not maxing out their Isas. Of those earning more than £150,000, only 43 per cent used their full allowance, although at higher earnings levels, stocks and shares Isas are much more widely used than cash.

The government estimates that tax relief on Isas costs £1.75bn a year, a fraction of the amount spent on pension tax relief. We should be making the Treasury work a lot harder.

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