More than 2 million people opened a cash ISA in the tax year 2023-24, dwarfing those who subscribed to a stocks and shares ISA (283,000) by almost 10 times, according to data released this morning by HMRC.
Some £103bn was saved in different ISA accounts during the tax year, up £31.4bn on the previous 12 months. Some £69.5bn was placed in cash accounts (up £27.9bn on 2022-23), while £31.1bn (up £3.1bn) was added to investment accounts.
In total, some 9.94 million Britons now have a cash ISA. This is more than double the 4.09m that subscribe to a stocks and shares ISA.
During the first half of the 2023/24 tax year, the Bank of England hiked rates before holding steady at 5.25%. Meanwhile, the average fixed rate deal rose from 3.84% to 4.6%, according to data from Moneyfactscompare, making cash ISAs more attractive to savers.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The cash ISA took centre stage for the second consecutive year,” adding that figures for the tax year 2024-25 (due to be released next year) will be “stunning” as well.
However, cash ISAs are under threat, with chancellor Rachel Reeves looking at ways to encourage people to put their cash towards investing, rather than languishing on the sidelines.
“The rumours around the cash ISA have proven stubborn, and while they remain purely in the realms of speculation, cuts to the cash ISA limit have yet to be completely ruled out,” said Coles.
Adrian Murphy, chief executive officer of Murphy Wealth, said the latest figures “only underline the chancellor’s case that we need to reform this tax wrapper”.
“Far too much ISA wealth was already held in cash and that is only growing, despite the fact that this is not what ISAs were originally conceived for.
“Hopefully today’s figures will embolden the chancellor to look at this topic again in November’s Budget. ISAs are a highly successful financial invention, and now have a total of 15 million subscriptions. But today’s figures underline why they can, and should, be reformed to work better.”
While popular, cash ISAs are not the best place to put money over the long term, research from St James’s Place has found.
Someone who consistently invested their full ISA allowance into a global equities stocks and shares ISA over the past decade would have had a pot worth £364,200 today, some £146,900 more than if they had deposited the annual payments into a cash ISA tracking the Bank of England base rate (£217,300).
Indeed, while the number of cash accounts dwarves those with stocks and shares ISAs, the latter is worth significantly more. Some £511bn is held in stocks and shares ISAs, while the value of all cash ISAs stands at £360bn.
Claire Trott, head of advice at St James’s Place, said: “Today’s HMRC figures are the latest indication that the UK population is over-saved and under-invested. While a cash buffer is important – and no doubt brings comfort to savers, promising safe, guaranteed returns – individuals who chose a cash ISA over a stocks and shares ISA could be missing out on hundreds of thousands of pounds over the long term.”
On top of this, savers are too-often unaware of the risks with a cash ISA, as their savings can be eroded “quickly and substantially” by inflation, she said.
Yesterday, an IG study found savers are unwilling to invest, despite the fact they can lose money in real terms by leaving their money in cash, with UK managing director Michael Healy suggesting cash accounts should carry the same proportionate risk warnings as investment products, highlighting the real risk that inflation can erode savings over time.
Trott said: “Ultimately, those wanting to reap the rewards of their finances over the long term need to be invested in the market. While short term fluctuations and market volatility may deter risk-averse savers, history shows that staying invested over time has consistently offered far greater potential for growth, and protected wealth against inflation.”
Murphy agreed. “Encouraging more people to invest their money, rather than have it sit on the sidelines in cash, should only be beneficial for their own financial situation, as well as the UK economy,” he said.
Stocks and shares ISAs were up during the year, having fallen back a little in the previous 12 months.
Elsewhere, it was another big year for the Lifetime ISA, with more people using the tax wrapper than in any other year since its launch.
Coles said: “For some, this was an opportunity to build vital savings for retirement. Meanwhile, others realised that higher savings rates and strong stock markets, combined with the government bonus, was a golden opportunity to overcome the challenges of recovering house prices and build a bigger property deposit.”
Junior ISAs were also up, with around 1.4 million new accounts opened worth £1.8bn, an average of £1,347. Around 36.4% of this was added to cash options.
Coles said it was “a positive sign” that the majority of money in JISAs went into investments, but said there was “clearly room for more parents to consider investing for their children”.