The end of the Cash Isa? Number of new accounts hits 18-year low

31 August 2018
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The number of new Isa accounts fell to an 18-year low during the last tax year, figures from HM Revenue and Customs (HMRC) have revealed.

The data shows that savers subscribed to 10.8 million Isa accounts during the 2017-18 tax year, down from 11.1 million in the previous tax year. This represents a fall of 10%.

Cash Isas saw the biggest decline, with the number of subscriptions down by 697,000. Nevertheless, the amounts subscribed increased by £610 million to £39.8 billion.

In contrast, Stocks and Shares Isas rose in popularity – with 246,000 more accounts opened compared to the previous tax year. This translated to a record inflow of £6.4 billion, bringing the total to £28.7 billion.

Jason Hollands, managing director of investment firm Tilney, says: "The declining interest in Cash Isas is understandable given the abysmally low interest rates on offer at a time when inflation spiked and put household finances under pressure, meaning real returns on cash savings were negative.”

He adds: “Another reason for the demise in enthusiasm for Cash Isas is that for most Britons these have now become, frankly, surplus to requirements; basic rate taxpayers no longer pay tax on their first £1,000 of savings interest anyway and higher rate taxpayers can earn up to £500 of interest tax free. With such a framework in place, there is little need to rush out and eagerly open a Cash Isa account.”

Lifetime Isa misses government target

Despite the fanfare surrounding the launch of Lifetime Isas (Lisas) last year, the number taken out has fallen short of government expectations.

According to figures from HMRC, a total of 166,000 Lisas have been set up, way below the 200,000 accounts the government originally expected to be opened.

The Lisa was introduced in April of last year and can be opened by anyone aged 18-40. Lisa savers can put away up to £4,000 a year until they are 50.

It can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60, with a tempting 25% bonus in either scenario.

They are aimed at young people looking to save a deposit for their first home or for retirement and are seen as the long-term replacement for Help to Buy Isas (HTB).

Hannah Maundrell, editor in chief at Money.co.uk, says: “The Lisa didn’t set the world on fire despite the promise of free cash. This isn’t surprising given they’re tailored to a niche market and relatively few providers offer them.

“Lisas are definitely worth looking at if you want to get on the property ladder or are looking for an alternative way to save for retirement alongside your pension. However, you’ll need to do a thorough compare and contrast with other options so you don’t end up stuck with an account that isn’t fit for purpose."

Junior ISAs

Junior Isas (Jisas) grew in popularity, with the number of accounts increasing from 794,000 to 907,000

While the amount held in stocks and shares Jisas went up by more than £50 million, the amount held in Cash Jisas fell by £8 million.

Ms Maundrell says: “It’s positive to see people saving for their children’s future. I anticipate the rise may be partly down to parents looking to save more for future costs in a tax-efficient way, after all, being the ’Bank of Mum and Dad’ is getting more and more costly.”

Jisas are held in the child’s name and provide a tax-free way to save for your child until they are 18. They work in a similar way to regular Isas, where parents can contribute up to a total of £4,260 during a tax year.

Ms Maundrell adds: “Jisas are definitely worth looking at if you want to save for a child’s future and the returns are reasonable too. You just need to be comfortable with the fact you’ll have no say in how the money is spent when the child turns 18 as it’ll be their choice entirely.”

The Innovative Finance ISA (Ifisa), which allows savers to invest in peer-to-peer lending, also saw a rise in popularity.

The number of Ifisas subscribed to last year was 31,000, up from 5,000 the previous tax year. The amount paid in by investors was £290 million, up from £36 million in the 2016/2017 tax year.

 

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