Savings accounts are paying mediocre levels of interest, but this has not acted as a deterrent as far as individual savings accounts (Isas) are concerned.
Eight in ten opted for cash Isas in the 2015/16 tax year, while the remainder opted for stocks and shares accounts, according to the latest statistics from HM Revenue & Customs. This 80% share of the Isa market in favour of the cash Isa is fairly sticky – it is broadly the same as the 2014/15 tax year, and previous tax years before that.
Overall, around 12.7 million adult Isa accounts were subscribed to in 2015/16, marginally down from 13 million subscribed to in 2014/15. Both the number of cash Isas and stocks and share Isas subscribed to fell slightly, both by 0.2 million.
In addition, average subscriptions in 2015/16 were £6,307, a 1% decrease on the 2014/15 figure.
In terms of age the greatest number of savers are in the 65 and over group. Moreover, this group also has the highest average Isa savings, with a value of £38,859.
But the data did show a slight uptick in the number of young people holding Isas compared to previous years.
Cash versus stocks and shares
Sticking to cash seems safe, but it is a mistake to view cash as risk-free. The effects of inflation means those who opt solely for cash risk doing themselves a disservice, as the real value of their money will gradually be eroded over time.
Moreover, history shows that over the long term, stock market returns have the upper hand over cash. Data from the 2016 Barclays Equity Gilt Study shows that British shares over the past 116 years have typically returned 5% annually (including share price growth and dividend payputs), while cash has returned 0.8%.
Junior Isa mistake
In addition, around 740,000 Junior Isa accounts were subscribed to in the fourth full financial year (2015/16) since the scheme was launched, up from 510,000 in 2014/15.
Again, the majority (497,000) are cash Isas. But given the long-term timescale there's a clear argument for branching out into equities when investing for children.
This story first appeared on our sister website Money Observer.