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£20 billion collapse in Cash ISA saving

HMRC have released the ISA statistics for the tax year 2016/17. You can find them here (Tables 9.4 and 9.6 are the ones which have been updated).

The big change is a collapse in Cash ISA saving. The number of accounts opened fell by 1.6 million, from 10.1 million in 2015/16 to 8.5 million in 2016/17. Similarly the amount subscribed to cash ISAs fell by almost £20 billion (£19.5 billion to be exact), from £58.7 billion in 2015/16 to £39.2 billion in 2016/17.

This drop in ISA saving can be attributed to introduction of the personal savings allowance last tax year which allows basic rate taxpayers to receive £1,000 of cash interest tax-free each year (£500 for higher rate taxpayers and £0 for additional rate taxpayers). A cut in interest rates last August probably didn't help either.

Meanwhile the amount of money subscribed to stocks and shares ISAs reached a record high last tax year, of £22.3 billion, up from £21.1 billion in 2015/16. The number of people subscribing to stock and shares ISAs also increased to 2,589,000, from 2,539,000, reversing the trend of falling subscribers in the last few years.

The number of Junior ISA accounts opened rose from 738,000 in 2015/16 to 794,000 in 2016/17. 569,000 of these were cash ISAs compared to 225,000 stocks and shares ISAs. £858 million was subscribed to Junior ISAs in 2016/17, down from £921 million in 2015/16. However the total amount now held in Junior ISAs has risen from £2.8 billion to £3.3 billion, breaching the £3 billion level for the first time.

Danny Cox, Chartered Financial Planner, Hargreaves Lansdown:

‘Low interest rates and the new personal savings allowance have precipitated a collapse in cash ISA saving. While understandable, this may prove to be short-sighted as neither low interest rates nor the personal saving 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.

Stocks and shares ISAs by comparison have enjoyed their biggest year ever in terms of the amount of money subscribed, despite Brexit causing a dip in an otherwise buoyant stock market. In a positive development the number of stocks and shares ISA investors also increased, reversing the trend of recent years and suggesting that more people are now turning to the stock market with their long term savings.

The amount of money invested in stocks and shares ISAs has overtaken that invested in cash ISAs for the first time ever, despite subscription amounts being much lower over the years. This reflects the fact that the stock market has produced better long term returns than cash, and also that people investing in stocks and shares ISAs tend to hold them for longer.

ISAs are the saver and investor's friend and should be at the heart of every portfolio. Record subscriptions to stocks and shares ISA 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.

The amount subscribed to Junior ISAs fell back a bit, but more accounts were opened than in the previous tax year. Given the long term nature of these accounts, it's concerning how many are plumping for cash rather than the markets. Junior ISAs have up to an 18 year investment horizon and cash is simply the wrong choice over this sort of time frame. However £3.3 billion is now held in Junior ISAs, and that represents a nice little nest egg building up for the next generation of young adults.

These figures relate to last tax year and so don't yet include the new Lifetime ISA. You might not need a calculator to count the number of Lifetime ISA providers just yet, however the tens of thousands of accounts already opened is a bright start and a sign of things to come.'