Savers flock to Cash Isas as the number opening Stocks and Shares Isas falls

25 June 2020

The number of new cash Isas jumped in the last tax year, but fewer people are investing in stocks and shares deals


Cash Isas are proving popular with savers, while uptake of investment Isas is slowing, figures from HM Revenue and Customs (HMRC) show.

The statistics reveal that the overall number of new Isa accounts rose in the last tax year.

Around 11.2 million adult Isa accounts were opened in 2018-19, up from 10.1 million in 2017-18. This is an increase of 10.9%.

Cash Isas saw the biggest increase, with the number of subscriptions going up by 1.4 million.

The number subscribing to cash Isas increased by 1.4 million from 2017-18. The amounts subscribed rose £730 million, to £44 billion.

In contrast, stocks and shares Isas are falling in popularity, with the number of accounts opened dropping to 450,000 compared to the previous tax year. This brought inflows down by £5.2 billion to £22.6 billion.

The rise in the number of cash Isas taken out comes despite the Bank of England setting historically low interest rates, affecting how much savers can earn from the deals.

Sarah Coles, personal finance analyst, Hargreaves Lansdown, says falling stockmarkets have put a lot of people off investment Isas.

She says: “They [stocks and shares Isas] ended the financial year higher than they started it, but there was something of a bumpy ride in between. At the same time there was an enormous amount of uncertainty around Brexit, and a deadline looming in March 2019. The fact an agreement looked unlikely by the deadline worried plenty of investors.”

Myron Jobson, personal finance campaigner, Interactive Investor (Moneywise’s parent company), says: “Uncertainty around what Brexit might look like in the 2018/2019 tax year may well have soured investor appetite for stocks and shares ISAs, combined with a tough quarter four for markets in 2018.

“Cash savings rates have languished for over a decade since the base rate was cut to help the UK economy recover from the financial crisis. While cash savings is imperative for short term funding requirements and to serve as a rainy-day pot, those who can afford to lock a portion of their cash away for at least five years could be missing out long term.”

Lifetime Isas

The number of Lifetime Isa (Lisas) accounts taken out rose from 154,000 to 223,000 in the period, bringing total inflows up to £604 million.

While the number of people opening a Lisa surged by 45%, people were putting less money into accounts, with the average subscription dropping by 16% to £2,709.

The most likely reason for this is that in the first year of the Lisa you could transfer your entire Help to Buy (HTB) Isa balance without it counting towards your annual £4,000 Lisa subscription, while in 2018/19 this was not possible.

The Lisa was introduced in April 2017 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 HTB Isas.

Junior Isas

Junior Isas (Jisas) also grew in popularity, with the number of accounts increasing from 907,000 to 954,000  

A total of £974 million was put into Jisa accounts in 2018-19, around 57% of which was in cash.

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 £9,000 during a tax year.

Laura Suter, personal finance analyst at investment platform AJ Bell, says: “This low average amount does make you wonder why the Government decided to increase the Jisa allowance to £9,000 in the current year and highlights that this additional tax break will only be used by a small minority of very wealthy people."

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