Savers turn their backs on cash ISAs

The amount of money saved into cash ISAs dropped 33% last year, according to year-on-year statistics from HMRC. 

Official figures show that during the 2016/17 financial year, the amount saved into cash ISAs fell by £19.5 billion to £39.2 billion.

There was also a decline in the number of cash ISAs opened, with 1.6 million fewer accounts taken out in the last tax year – taking the total to 8.5 million.

While the amount of money being saved into cash ISAs is declining, deposits into stocks and shares ISAs hit a record high of £22.3 billion in 2016/17 – up from £21.1 billion on the previous year. 

This was reflected by the number of stock and shares ISA subscribers, which rose from 2.5 million to 2.6 million over the same period. 

Richard Stone, chief executive of The Share Centre, said:

“It is interesting to note the fall is wholly down to a drop in amounts saved into cash ISAs. 

“This perhaps reflects a growing appreciation among savers and investors of the impact of inflation on cash savings at a time of low interest rates.”

Speaking to the Guardian, Steve Webb, directory of policy at Royal London, added:

“Low ISA interest rates coupled with rising inflation means that cash ISAs have delivered negative real returns year after year. 

“It is to be hoped this slump in saving through cash ISAs means investors have started to realise the risks associated with keeping their money in cash.”

Rule changes

The finger of blame behind the declining popularity of cash ISAs is being pointed at the introduction of the personal savings allowance.

This gives basic-rate taxpayers £1,000 of tax-free interest outside ISAs and £500 to higher-rate taxpayers.

It means potential interest to be earned from many bank account savings is on par with cash ISAs, whose best rates are currently only around 1%.

Stocks and shares ISAs

The number of people choosing to save into stocks and shares ISAs reverses the trend of falling subscribers in recent years – but what makes this ISA so much more attractive?

The stock market usually produces better long-term returns than cash, while people who invest in stocks and shares ISAs tend to hold them for longer. 

Contact us to discuss your savings strategy.