The amount invested in cash Isas has collapsed as stocks and share accounts have overtaken them for the first time.
Data from HM Revenue and Customs shows that the number of cash Isas opened dropped by 1.6 million in 2016/17, falling to 8.5 million. The amount invested fell by nearly £20bn, dropping to £39.2bn.
Stocks and shares Isa subscriptions were up £1.2bn to £22.3bn. The movements take the total amount invested in stocks and shares Isas to £315bn, passing the £270bn held in cash Isas.
The trends have been put down to a cut in interest rates, as well as last year’s personal savings allowance allowing basic rate taxpayers tax-free interest of up to £1000.
Hargreaves Lansdown financial planner Danny Cox says: “Low interest rates and the new personal savings allowance have precipitated a collapse in cash ISA saving. While understandable, this may prove to be short-sighted as neither low interest rates nor the personal saving allowance are necessarily a permanent fixture of the financial landscape, though it’s fair to say both do look set to remain in place for the foreseeable future.”
Cox adds that stocks and share Isa funds overtaking cash Isas’ “reflects the fact that the stock market has produced better long term returns than cash, and also that people investing in stocks and shares ISAs tend to hold them for longer.”