TSB’s latest research reveals that almost two thirds (63%) of Brits still have not used their ISA allowance this tax year.

Just 15% of people have used their full 2013/14 ISA allowance, with only a fifth (22%) investing a partial amount. With average balances standing at £1,211, that falls £4,549 short of this year’s cash ISA allowance of £5,760.

Across Britain, the shortfall in ISA balances equates to over £200 billion, which could be being used to make the most of tax-free saving. For example, taking the average ISA rate of 1.64%2, British savers could earn more than £3.5 billion in interest this tax year alone by saving the maximum, compared to an average savings account, where a basic rate tax payer would forfeit 20 per cent of their interest to the tax man and Britain could be £717 million better off by using an ISA and banking the tax free interest.

It could be because people think there is no point, with one in five saying they are put off from saving because rates are perceived to be too low. Not using up the full ISA allowance this year, however, will also impact the interest people can earn in future tax years. With research showing that people keep their ISA for an average seven years, using the full allowance across every year in the life of their ISA could have helped them build up a balance of £31,440 since 2007, excluding interest.

Assuming Brits took advantage of their full annual allowances and received an average interest rate of 1.64% in previous years, not only would it cost them more than £537 in lost interest this year but it could mean they have missed out on more than £1,865 in interest over the life of their ISA.

With people unable to top up previous years' balances at a later date, making the most of the allowance each year is said to be crucial.

While two thirds (63%) of Brits have not saved into their ISA due to not having any spare money left at the end of the month, the research does show that nearly half (43%) of those who do save do so for a long-term investment, such as their retirement.

In the recent Budget it was announced that, from July 1, cash and stocks and shares ISAs could be merged to create a single new ISA ,allowing people to save up to £15,000 tax free.

If people saved the maximum limit over the next seven years, they could build a balance of £110,309 generating interest of £7,119. Across Britain that is £342 billion in interest which, if laid out in £1 coins, would stretch around the world 192 times.

Jonathan Hall, head of savings at TSB, said: “Interest rates might be low at the moment but thinking about the long-term health of finances is important. Taking advantage of tax-free savings now should be high on the priority list, as it puts more money back into people’s pocket.

"Even if someone has just a few pounds to save, they should be saving it in an ISA. We know a healthy economy relies on people saving."