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Savers ditch cash ISAs as record stocks and shares inflow recorded

Written by: Paloma Kubiak
The amount deposited into cash ISAs fell by a staggering £20bn in the 2016/17 tax year as record inflows were reported for stocks and shares ISAs.

Latest figures from HM Revenue & Customs (HMRC) reveal nearly 8.5 million cash ISA accounts were opened in the 2016/17 tax year, down from the 10.1 million opened in 2015/16.

But a starker result can be seen in the amount subscribed to cash ISAs, which fell by a third from £58.7bn in 2015/16 to £39.2bn in the last tax year – nearly £20bn less.

The total amount of money invested in stocks and shares ISAs has also overtaken the amount deposited in cash ISAs for this tax year. The amount of money held in adult stocks and shares ISAs now stands at £315bn compared to £270bn in cash ISAs.

One of the reasons for the net outflow from cash ISAs and increase in stocks and shares ISA holdings is the introduction of the Personal Savings Allowance on 6 April 2016. This allows basic rate taxpayers to receive £1,000 of cash interest tax-free each year (£500 for higher rate taxpayers and zero for additional rate taxpayers). However, the cut in the bank base rate in August last year to an unprecedented low of 0.25% probably helped this shift too.

The data revealed that at the end of 2016/17, the total adult ISA holdings stood at £585bn, a 10% increase from the previous year, and is largely driven by the market value of funds held in stocks and shares.

A look at Junior ISA subscriptions and holdings showed an increase in accounts opened: from 738,000 in 2015/16 to 794,000 in 2016/17. More than half a million (569,000) of these were cash ISAs compared to 225,000 stocks and shares ISAs. £858m was deposited to Junior ISAs in 2016/17, down from £921m in 2015/16. However the total amount held in Junior ISAs has risen from £2.8bn to £3.3bn, breaching the £3bn level for the first time.

‘The stock market is pretty much the only game in town’

Danny Cox, chartered financial planner at Hargreaves Lansdown, said low interest rates and the new personal savings allowance have precipitated a collapse in cash ISA saving.

“Stocks and shares ISAs have enjoyed their biggest year ever in terms of the amount of money subscribed, despite Brexit causing a dip in an otherwise buoyant stock market. In a positive development, the number of stocks and shares ISA investors also increased, reversing the trend of recent years and suggesting more people are now turning to the stock market with their long-term savings.

“ISAs are the saver and investor’s friend and should be at the heart of every portfolio. Record subscriptions to stocks and shares ISAs are a reflection of interest rates being at such a low ebb and the stock market being pretty much the only game in town if you want an income from your savings.”

See’s A practical guide to moving from a cash to stocks and shares ISA for more information.

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