Cash ISAs have long been the savings account of choice for many consumers, and although the gloss may have started to come off them recently due to widespread, dramatic rate cuts, there's certainly still some fight left in them. However, those cuts are understandably beginning to take their toll, and as a result, more and more consumers are turning to the cash ISA's stocks & shares counterpart.
Official figures from HMRC show that ISA subscriptions soared to record levels during the 2015/16 tax year, with stocks & shares ISAs leading the way. The figures show that total subscriptions soared to £80.2bn, an increase of £1.4bn from the previous tax year (£78.8bn was subscribed in 2014/15). This was wholly driven by a boost in subscriptions to stocks & shares ISAs, which totalled £21.4bn, up from £17.9bn in 2014/15 (an increase of £3.5bn).
Conversely, subscriptions to cash ISAs actually fell, despite still accounting for the highest proportion overall: the total stood at £58.8bn for 2015/16, a drop of £2.1bn from the £60.9bn subscribed in 2014/15. Savers are increasingly setting their sights on the higher returns that can be achieved through stocks & shares, an understandable trend given the state of the savings market at the moment.
… to curb record low rates
Analysis suggests that the migration to stocks & shares ISAs is a way to mitigate the paltry returns that can be achieved in cash, with average rates at record lows and continuing to fall. Our recent figures highlight the extent of the downturn, and unfortunately, there's no sign of things changing any time soon.
The one saving grace is that ISAs can still offer a better return than their non-ISA counterparts, particularly in the easy access sector, but that may not be enough to stop people from turning their backs on them. Indeed, there are even signs that some savers are moving away from the ISA sector altogether – the number of accounts subscribed to fell from 13m in 2014/15 to 12.7m in 2015/16.
The value of subscriptions rose in spite of this, suggesting that those who are saving are taking full advantage of the higher investment allowance of recent years. The general trend, however, remains clear – particularly when it comes to cash.
"Record subscriptions to stocks & shares ISAs are a reflection of interest rates being at the lowest of the low," commented Danny Cox, a chartered financial planner at Hargreaves Lansdown. "Equities are pretty well the only game in town for yield, for those happy with the additional risk. So, despite investor confidence falling back to 2008 levels and cash ISA interest rates at record lows, savers and investors still understand the longer-term benefits of sheltering their hard-earned money from tax."
See if a stocks & shares ISA could be for you – just make sure you read our guide first so that you're fully aware of the risks involved
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