Low Rates: Cash ISA Savers Turn to Stocks and Shares ISAs

Savings accounts across England are increasingly falling out of favour, with individuals turning instead to investments.

According to the latest statistics, low interest rates and inflation are to blame, with these having catalysed a dramatic decrease in the number of people opening cash ISAs.

The figures released by HMRC show that new tax-free accounts have fallen by an astonishing 1.6 million in the last year alone, with Britons putting £20 billion less into cash ISAs in 2016/2017 compared to the year previously.

Stocks and shares ISAs have enjoyed far more favourable fortunes, with the amount of cash being placed into them reaching a record high, so that it is now £21 billion more than this time last year.

Are Savers Opting for Higher Risk Investments?

Experts suggest that the reason for this is easy to understand: faced with low yields, savers are choosing to abandon their traditional caution and adopt a higher risk approach in the hopes of getting some return for their money.

This trend follows hot on the heels of the Bank of England’s decision to drop the base rate by 0.25 percent in 2016, driving huge decreases in returns for those with their capital caught up in high street savings accounts and cash ISAs.

An additional factor at play may be the introduction of the personal savings allowance last year, which gave taxpayers the chance to receive £1,000 of interest-free cash per annum.

Cash ISAs hit by PSA and Low Interest Rates

Explaining this phenomenon, experts like Danny Cox blame the combination of these two catalysts – low interest rates and the new personal savings allowance – for the collapse in cash ISA saving that we’re seeing now.

However, Mr Cox cautioned those responding thus that: “While understandable, this may prove to be short-sighted, as neither low interest rates nor the personal savings 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.

Savers Turn to Stocks and Shares ISAs

“[However], ISAs are the saver and investor’s friend, and should be at the heart of every portfolio.”

Despite his caution, the expert acknowledged that: “Record subscription 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.”

This is an opinion that his fellow professional Steven Cameron concurs with, blaming the combination of low interest rates and rising inflation for taking a toll on cash ISA numbers and discouraging savers from putting their money into such accounts.

Suggesting that people are now reaching a point where they’re really beginning to recognise the damaging effect of this mix, he nonetheless urged that it remains important to save and to consider all options before making a final decision in order to best protect individual finances and future buying power.

He elucidated: “The slight increase in the number of people opting for stocks and shares ISAs may indicate that many people’s historic resistance to stock market investing is weakening.

“Let’s hope these figures mark the start of a trend of people diversifying their savings rather than simply dialling down their overall savings.”

Courtney Lucas

When not feeding her 3 cats, Courtney writes about a variety of subjects, but mainly business and tech. She is interested in Fintech and the latest news regarding interest rates.