Just under 12 million people paid into an adult ISA in the 2021/22 tax year, and the choices we made tells us a lot about ourselves as savers and investors. We take a look at the different ISAs available and which type people invested in.
This article isn’t personal advice. ISA and tax rules can change, and any benefits depend on your circumstances. Unlike the security offered by cash, all investments can fall as well as rise in value so you could get back less than you invest. If you're not sure what’s right for your circumstances, ask for financial advice.
The strength of Stocks and Shares ISAs
The 2021/22 tax year was the second year of the pandemic. We’d seen a huge surge in ISA investment in the first year, and the second managed to eclipse it.
Sums subscribed into Stocks and Shares ISAs soared by another £300 million compared to the 2020/21 tax year. And almost 4 million people paid into them – more than any other year since the rules were changed in 2008/09.
Discover our Stocks and Shares ISA
Cash ISAs – a change in fortunes
Ultra-low interest rates in the 2021/22 tax year meant the sums paid into Cash ISAs saw another slide. They’d collapsed by £12 billion a year earlier and were down almost £6 billion from there – in the face of rock bottom interest rates.
The interest rate landscape couldn’t be any different now. Since then, Cash ISA savings have seen a dramatic recovery thanks to soaring interest rates. Bank of England (BoE) statistics showed £9 billion was paid into them in April this year alone.
The rise of the Lifetime ISA
The number of people investing into a Lifetime ISA (LISA) rose to a new high of 662,000, and the average amount paid during the tax year hit £1,700. In total, we added £1.7 billion to LISAs during the 2021/22 tax year.
Now that LISAs have celebrated their sixth birthday, more people are getting to grips with what they have to offer – including the government bonus.
You can open a LISA between the age of 18 and 39 and pay in up to £4,000 every tax year. In return you’ll get a 25% bonus from the government. This means you could get up to £1,000 for each year you save.
After 12 months from the first payment, you can use the money for a qualifying first-time home purchase. Once opened, you can also continue to pay into a LISA until you’re 50 and withdraw money from age 60. This means you could use it to generate a retirement income that’s free of UK income or capital gains tax and complement other pension provision you may have.
Any withdrawals that aren’t a qualifying first home purchase or before age 60, are usually subject to a 25% penalty, meaning you could get back less than you put in.
How popular are ISAs where you live?
London isn’t the ISA capital: it’s the South East and South West that walk away with the joint title, where just under half of people have an ISA.
The South East is where people have held the largest ISA balances – at £37,231.
Women open up more ISAs
Latest HMRC figures show women have opened more ISAs than men for 10 years running. But with inflation sticky, and way above interest rates, could a preference for cash ISAs impact their long-term financial future? HL offers cash and S&S ISAs. Risk of loss. #Investing #Savings pic.twitter.com/EjgTBdTRTH
— Hargreaves Lansdown (@HLInvest) June 26, 2023
Women have more ISAs than men – holding just over half of all ISAs.
However, that doesn’t tell the whole story, because they have tended to opt for Cash ISAs – making up 57% of those who only have a Cash ISA.
Meanwhile, men are more likely to have a Stocks and Shares ISA than women – and make up 60% of those holding either a Stocks and Shares ISA, or both Stocks and Shares and Cash ISAs.
There can be sound reasons for choosing Cash ISAs, especially if you’re building an emergency fund. However, once you have your buffer if you’re holding cash for the long term, you can pay a price for it as inflation erodes the value of money over time.
Women tend to hold less in their ISAs. The gender ISA gap sees men with an average of £32,287 this year compared to £29,565 for women.
One reason for this is they haven’t been able to benefit as much from investment growth over the years. Of course, you should only think about investing if you’re not going to need the money for at least five years. You also need to think about your goals and how much risk you’re taking when deciding what’s right for you. And regularly review your investments and goals to ensure you stay on track. Seek advice if at all unsure.