Cash Isas on Top as Uncertainty Reigns

Latest HMRC figures show a dash to cash for Isa savers in 2018/19 as Brexit uncertainty loomed and stock markets turned volatile

Annalisa Esposito 25 June, 2020 | 3:10PM
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Cash Isas became the most popular Isa accounts in the year to April 2019 as volatility and Brexit uncertainty spooked investors, latest figures from HM Revenue & Customs show

Its data for the 2018/19 tax year shows some two-thirds of subscribtions into Isas were into cash accounts with an extra 1.4 million accounts opened compared with the previous year. The average amount saved by individuals was down 6% on the year before at £6,049.

Adrian Lowcock, head of personal investing at Willis Owen, thinks Brexit uncertainty is largely to blame for savers shying away from the stock market. "The original deadline to leave the EU was March 31, 2019 and that likely put investors off from investing," he says. "The HMRC data shows the impact that such high levels of uncertainty can have on peoples' behaviour." 

Stocks and Shares Isas were sharply out of favour, HMRC figures show, with 450,000 fewer opened in 2018/19 than in the year before - the lowest levels since the financial crisis. The total amount invested into these accounts was down £5.2 billion from the previous year as a bout of stock market volatility in 2018 unnerved many investors. Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Stock markets eventually ended the year higher than they started it, but there was something of a bumpy ride in between.”

Overall, some 11.2 million individuals opened an Isa in 2018/19, saving a total of £67.5 billion - up £2.3 billion from a year earlier. The popularity of the Lifetime Isa was particularly noticeable with the number of accounts opening in the year jumping 45% to 223,000 anda total of £604 million invested. The accounts, launched in 2017, offer a 25% bonus to individuals using their savings to buy their first home. However, people were putting less money in the accounts, with the average subscription dropping by 16% to £2,709.

Junior Isas

More people are squirreling money away for their little ones, with the number of Junior Isas opened up 5% year-on-year. Some £974 million was poured into the accounts, which can be opened by parents and grandparents for young people aged up to 16, and 57% of this was in cash. While the government has now increased the annual Jisa allowance to £9,000, on average families saved £1,020 into these accounts.

Laura Suter, personal finance analyst at AJ Bell, says it's frustrating that the majority of parents are still saving into cash accounts for their kids. "If you’re locking money up for up to 18 years, you’re in the ideal place to be able to ride out the rises and falls in the stock market and have the potential to supercharge your child’s savings by getting higher returns,” she says. 

Gender Gap is Narrowing

More women are making use of Isas than ever before. With 11.5 million women opening an account compared with 10.5 million men, they make up 52% of Isa holders. However, women are far more likely to stick to cash accounts rather than make use of a Stocks & Shares Isa to invest, the data shows.

Some 56% of investment Isas are held by men and the amount they tuck away into their tax-efficient accounts is typically higher, too. On average, men hold £27,643 in their Isa compared to £24,831 for women - that's a difference of £2,812.  

Coles says: “A big factor at play is that women earn less than men on average, and people need to have enough income to be comfortable with investment." She says the tipping point from cash to shares is typically when an individual's income reaches £30,000 - before this point people are much more likely to want their cash safely in the bank.  

At such a time of financial uncertainty, with many households worrying about job security due to the coronavirus crisis, some people have stopped thinking about their long-term financial security. But Jeanette Makings, head of financial education at Close Brothers, highlights that any money that’s been put aside for savings should be made to work as hard as possible and generous tax allowances, like the Isa, should not be passed up lightly. She adds: “It’s clear that while saving for retirement is a long-term saving goal for most, cash investments are unlikely to be the most suited for this purpose.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk