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06 Sep 2017

Cash Isas losing their appeal, with investments down £20bn

People are saving less money in cash Individual Savings Accounts (Isas), as low interest rates and tax changes make them a less attractive option.

Figures from HMRC show that the amount saved has dropped by a third in just one year.

In the 2015-16 financial year, cash Isa holders paid £58.7bn into them but the amount of new money saved fell to £39.2bn in 2016-17.

This is thought to be due to the low interest rates available, as well as the arrival of the personal savings allowance last year. Since April 2016, savers can receive £1,000 of cash interest tax-free each year, reducing the tax advantage of Isas.

The figures also reveal that more savers are turning to stocks and shares Isas, reversing the trend of falling subscriber numbers in the last few years. The amount of money flowing into stocks and shares Isas reached a record high of £22.3bn in the last tax year, up from £21.1bn in 2015-16.

In fact, the total amount invested in stocks and shares Isas has overtaken the sums invested in cash Isas for the first time ever. The amount of money held in stocks and shares Isas now stands at £315bn, compared with £270bn in cash Isas.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said 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,” Cox added. “Record subscriptions to stocks and shares Isas 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.”

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