Nearly 1 million fewer adults chose cash ISAs on the cusp of the most aggressive rate hiking cycle in decades

Today saw HMRC publish its Annual Savings Statistics, revealing data on the take-up of Individual Savings Accounts, Junior ISAs and Child Trust Funds for the tax year 2021/22.

The latest data shows that the number of adults subscribing to ISAs, declined from 12.2 million in 2020/21 to 11.8 million in 2021/22 with £5.3 billion less subscribed to ISAs than the previous year.

Look beneath the bonnet and the trend diverged markedly between savings and investments though. While stocks & shares ISA increased in popularity adding 345,00 more subscribers, 920,000 fewer adults funded cash ISAs.

Jason Hollands, Managing Director of Bestinvest, the investment platform and coaching service for Do-it-Yourself investors, comments:

“It is important to remember that these statistics reflect a very different environment for savers and investors to the one we are now in. For much of the 2021/22 tax year, equity markets were rocketing on the back of post-lockdown euphoria and a wall of liquidity from central bank money printing. While inflationary storm clouds were gathering, the Bank of England only began its hiking cycle in December 2021 with rates finishing the tax year at 0.75%, a fraction of where they are today and where they are heading.

“Nevertheless, there are some interesting observations in this data. One set of figures that stands out is that while the number of Junior ISAs being subscribed to rose by an impressive 27% year-on-year to the highest number ever, the proportion of Junior ISAs going into cash fell 60.8% - its lowest level since the inception of the scheme. Since Junior ISAs were launched in November 2011 the proportion of accounts subscribed into cash Junior ISAs has persistently hovered close to 70%, despite very low savings rates and cash being a terrible place to park wealth over the long-term due to the corrosive effect of inflation. Time will tell whether this shift towards investing proves to be a blip.

“It is also noteworthy when looking at the income distribution of those contributing to ISAs,  that among those earning over £150k a year – a level of income that is subject to the highest rate of income tax and where there is no eligibility for any tax-free interest under the annual Personal Saving Allowance – only 61% of those subscribing to an ISA in this income band were fully utilising their £20,000 annual allowance.   

“Whether you are a saver or an investor, ISAs are now more relevant than ever given the rising tax burden and the Chancellor’s recent sharp reductions to both the annual capital gains exemption – from £12,300 last year to £6,000 in 2023/24 - and the slashing of the annual dividend allowance from £2,000 last year, to £1,000 in 2023/24. Both allowances are set to be halved again from April 2024.

“For cash savers, much higher interest rates means that achieving tax efficiency is important too – especially for the ballooning number of people now paying tax at the 45% band on the back of the recent reduction in the threshold from £150k to £125,140, as they lose all entitlement to tax-free interest under the Personal Savings Allowance.

“Given the increasingly oppressive tax environment faced by savers and investors, it is vital to make use of the tax-free allowances available, to protect your wealth. In this respect, ISAs should be high on people’s to-do list.”