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Home » Features » Bottom falls out of cash ISA market as savers turn into investors

This was the year of the stocks and shares ISA. The lockdown investment boom sent stocks and shares ISAs soaring by £10 billion, and almost 3.6 million people joined the surge – more than any other year since the rules were changed in 2008/9. Meanwhile, the bottom fell out of the cash ISA market, with the total saved falling an astonishing £12 billion.

According to data released by the UK HMRC, the number of stocks and shares ISAs were up 860,000 and the amount paid into them was up £10 billion. The number of cash ISAs opened fell 1.6 million in 2020/21, and the amount paid into them plummeted by £12 billion. The share of cash accounts has fallen to 66%. This is its lowest share of all ISAs since the rules were changed in 2008/9.

The early months of the pandemic gave people the time, money and enthusiasm for investment that saw an enormous boost in stocks and shares ISAs. Investors were richly rewarded for it too, because by the end of the tax year we held a total of £687 billion in ISAs – up 11% in a year – driven by a 31% rise in the value of funds held in stocks and shares ISAs.

The collapse of the cash ISA market

Meanwhile, the money saved into cash ISAs collapsed. “Some of this will have been because those who usually plump for cash opted to invest instead,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown. “At a time when cash ISAs were offering rock bottom rates, and there was so much focus on investments, there’s a good chance that people had the space to weigh up the potential benefits of each, and decided that the money they were putting away for the long term may be better off in the stock market.”

Unfortunately, some of the fall in cash ISAs will be because of the toll the pandemic took on many people’s incomes. We know that the higher your income, the more likely you are to open a stocks and shares ISA rather than a cash ISA.

“During the first year of the pandemic, those on higher incomes were more likely to have kept their income and seen their outgoings drop – so they had more money to invest,” said Coles. “Meanwhile, those on lower incomes were more likely to have lost some of their wages and still faced the same outgoings – so they had nothing spare for saving.”

The personal savings allowance will also have played a part. At a time of such low interest rates, the overwhelming majority of those who had cash to put into savings were unlikely to breach the allowance, so were more likely to opt for a savings account, where they could make marginally more on their cash.

Other 2019/20 ISA statistics from the release

At the end of the tax year the share of ISA money in stocks and shares was 58% – up from 49% a year earlier. We paid a staggering £1 billion into 940,000 JISAs – down from around a million a year earlier. However, those who stuck with it doubled down. The average subscription was £1,133 – up around a fifth from a year earlier. Around 57% of JISA payments were in cash.

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This article is not investment advice. Investors should do their own research or consult a professional advisor.

Graeme Andrew

Graeme Coles-Andrew

Graeme is Head of Technology at the Armchair Trader. He has worked in online financial investment publishing since 2000 as a website developer, advertising operations manager, data scientist and all-round go-to guy for online technical solutions.

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