Savers ditching cash ISAs for stocks and shares

The number of cash ISAs subscribed to fell by 697,000 in the 2017/18 period, while the number of savers subscribing to stocks and shares ISAs increased by 246,000, data from HM Revenue & Customs (HMRC) revealed.

Despite this, in its Individual Savings Account (ISA) Statistics report published today, the tax revenue found that around 10.8 million adult ISA accounts were subscribed to in 2017/18, down from 11.1 million subscribed to 2016/17. Furthermore, the share of cash ISA subscriptions as a proportion of all ISA subscription fell from 77 per cent in 2016/17 to 72 per cent in 2017/18.

However, while adult ISA subscriptions were down, the number of savers subscribing to junior ISAs was up from 794,000 in 2016/17 to 907,000 in 2017/18.

The figures illustrated that around £69bn was put into adult ISAs in 2017/18, an increase of £7.8bn compared to 2016/17, despite the number of subscribers being down. HMRC suggested that this increase is driven by the rise in stocks and shares ISA subscriptions. Average subscriptions in 2017/18 were £6,409, a 15 per cent increase on the 2016/17 figure.

While overall adult ISA subscription numbers were down, at the end of the 2017/18 period, the market value of adult ISA holdings stood at £608bn, representing a 4 per cent increase compared to the value at the end of 2016/17. The revenue noted that this increase was driven by a rise in the market value of funds held in stocks and shares which increased by 7 per cent compared to a year earlier.

Cash ISA holdings accounted for 44 per cent of the market value of ISA funds and stocks and shares ISA accounted for 55 per cent.

Commenting on the data, Zurich head of retail platform strategy Alistair Wilson said: “There’s no denying the past few years have been challenging for savers with a combination of low interest rates and inflation outstripping wages, and this is now starting to generate a shift in savings behaviour. Consumers are turning away from cash ISAs and instead opting for stocks and shares ISAs to make their money grow over the long-term.

“However, while the value of money held in ISAs has increased - an encouraging trend - this masks a more worrying figure: that overall ISA subscription rates are falling. The benefits of ISAs can’t be underestimated. They are one of the most tax efficient ways to save, shielding money from inflation, and should form a key part of any saver’s portfolio.”

Quilter tax and financial planning expert Rachael Griffin added: “Although subscription numbers declined slightly, the amount saved actually increased on aggregate because, on average, the typical stocks and shares Isa investor is putting more money into their account. The average amount paid into an Isa increased by 15 per cent to nearly £6,500, although this still means the average Isa holder has around £13,500 of unused Isa allowance each year.

“Over time, compound returns can deliver rewards for investors that commit to saving through a stocks and shares Isa, and this is growing more appealing as the prolonged low interest rate environment means that returns on cash continue to be meagre.”

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