PA ANALYSIS: Why cash ISAs have lost their shine

Added 1st September 2017

Cash ISAs are on the wane while the amount of money pumped into stocks and shares ISAs is growing, but why is this and who is responsible?

PA ANALYSIS: Why cash ISAs have lost their shine

According to HMRC statistics, the overall number of ISA accounts opened fell from 10.1 million in 2015/16 to 8.5 million in 2016/17. But at the same time the amount of money held in adult stocks and shares ISAs now stands at £315bn compared to £270bn in cash ISAs.

The amount of money subscribed to stocks and shares ISAs reached a record high last tax year of £22.3bn, up from £21.1bn in 2015/16. The number of people subscribing to these products also increased to 2.59 million, from 2.54 million.

The figures are no big surprise given low interest rates in recent years have disappointed consumers wanting a positive return on their money in real terms, especially against a backdrop of rising inflation.

Add to this the introduction of the personal savings allowance last tax year, which allows basic rate taxpayers to receive £1,000 of cash interest tax-free each year, as well as a cut in interest rates last August, and the attractiveness of ISAs across the board has dwindled.

Given this, it’s not a shock that people have opted for the potential added return from investing in stocks and shares rather than cash. 

"Stocks have a 68% chance of beating cash if invested over a two-year period, and this jumps to 99% over an 18-year period."

According to figures from the Barclays Equity Gilt Study, which compares returns from stocks with cash since 1899, stocks have a 68% chance of beating cash if invested over a two-year period, and this jumps to 99% over an 18-year period.

Industry to blame for dwindling interest

But despite the modest increase in stocks and shares ISAs, a number of industry participants believe the investment industry has failed by not educating the consumer adequately about the perils of holding cash and the benefits of investing in the stock market.

Stuart Millson, managing director and co-founder at Broker Compare, believes the modest increase in the amount saved into stocks and shares ISAs is “a damning indictment of those of us in the investment industry”. 

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About Author

Sebastian joined Last Word Media in 2017 as editor of Portfolio Adviser. He previously spent 10 years as a journalist and editor in the UK institutional investment sector, most recently as editor of Portfolio Institutional. Prior to that, he held several roles at Professional Pensions which is part of Incisive Media.

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