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Is this the death of the cash Isa?

Isa deposits are down £18bn since 2015-2016

Is this the death of the cash Isa?

Cash Isas once offered a tax-free haven for savers but their popularity is in decline – a trend that shows no signs of slowing.

In the era of low interest rates, and since the arrival of the personal savings allowance, cash Isas have become less attractive for savers.

Indeed, the number of Isas opened in 2016-17 dropped by 1.6m, to just 11.1m overall, according to new HRMC data.

But are cash Isas still worthwhile in 2017? We look at recent trends and weigh up the benefits of a cash Isa.

Find out more: What is an Isa? – the ins and outs of Isas explained

1.6m fewer cash Isa accounts opened

Savers are deserting cash Isas, with the number of account subscriptions dropping for the fourth consecutive year.

Stocks and Shares Isas, however, have bucked the trend, with subscriptions rising slightly since 2015-16.

As the chart below shows, new accounts remain well below the peak levels seen in 2009-10.

Elsewhere, Junior Isa subscriptions remained stable, with 794,000 accounts opened in 2016-17, up from 738,000 in 2015-16.

Total cash Isa deposits down by £18bn

As account numbers have dropped, so too have deposits – although this figure is skewed somewhat by the surge seen in 2014-15, when the annual deposit limits were increased to £15,000.

£62bn was deposited in Adult Isas in 2016-17, down from £80bn in 2015-16. Meanwhile, the average subscription was for £5,538 – a drop of 13% from the year prior.

Is it still worth subscribing to a cash Isa?

In the current market, the best available savings rates can now be found on fixed-term bond accounts, rather than Isas.

Meanwhile, in April 2016, the government introduced a personal savings allowance, which allows tax payers to earn a set amount of interest before incurring a tax bill – £1000 for basic rate payers and £500 for higher-rate payers. This means that most savers can grow their cash tax-free without the need of an Isa.

But there’s still benefits to the humble Isa.

Isa interest rates have actually been creeping up in the last few months. A new two year fixed-rate deal from Birmingham Midshires offers a rate of 1.5%, the highest level seen in a year on this type of account.

In turbulent political times, it’s also worth remembering that Isas offer the security of a future-proof tax-free pot. Cash Isas can also be inherited by your spouse, another benefit to bear in mind.

You can find out more about the pros and cons of saving in an Isa in our ‘Are Isas still worthwhile?’ guide.

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

Categories: Money, Savings & Isas

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