Investment ISAs boom as savers shun low rates on cash ISAs

4 September 2017 – Low interest rates and the introduction of the personal savings allowance have both contributed to a £20 billion* fall in the amount being deposited into cash ISAs. At the same time, inflows into investment ISAs has hit a record high, suggesting that savers are looking for potentially higher returns.

According to recently published figures from HM Revenue & Customs, the total amount subscribed into cash ISAs fell from £58.7 billion* in 2015/2016 to £39.2 billion* in 2016/2017.

Investment ISAs, on the other hand, have seen record inflows, with the total amount invested now standing at £315 billion and the amount invested into Junior ISAs has risen from £2.8bn to £3.3bn, breaching the £3bn level for the first time.

Reasons cited for the fall in popularity of cash ISAs include the introduction of the personal savings allowance – which allows basic tax payers to receive £1,000 of cash interest tax-free each year (£500 for higher rate taxpayers and zero for additional rate taxpayers) – and continued low interest rates on cash ISA accounts.

Time to transfer to an investment ISA?

As we noted earlier in the year, when we marked 100 months of low interest rates, cash savers have been penalised since the global financial crisis, with the average account returning just £40 over the past eight years or so, while top equity funds return £4,000.

With the BBC reporting today that many economist do not expect UK interest rates to rise until 2019, when we will have greater clarity around the UK's post-Brexit trading framework, any savers still invested in cash ISAs, who are happy to forego the capital security of cash for the potential for higher returns, may like to transfer to an investment ISA.

*https://www.gov.uk/government/collections/individual-savings-accounts-isa-statistics