Cash Isas suffer £4.5bn withdrawal during 2021

Some £574m was withdrawn from cash Isas in December, according to the Bank of England. Investors have been pulling money out of the products since January last year, with nearly £1bn redeemed in April alone.

The number of cash Isas offered on the market has also dropped, falling in February 379, from 388 in January, according to Moneyfacts’ latest UK savings trends treasury report.

This drop represents the lowest figure seen since last September, and significantly lower than the 453 products offered in August 2019.

Deposits in cash Isas in 2021

Source: Bank of England

Cash Isas have always been the dominant part of the Isa market, despite ultra-low interest rates for many years, said Jason Hollands, managing director at Tilney, Smith & Williamson.

However since 2016 he said that they have been surplus to requirements due to the personal savings allowance.

It is difficult to predict whether it would be a premature move for savers to lock into a deal now.Springall

First announced by then Chancellor George Osborne in 2015 the personal savings allowance lets basic rate taxpayers receive up to £1,000 a year in savings income tax-free, dropping to £500 for higher rate taxpayers.

This applies to money in bank and building accounts, alongside Isas.

The increasing outflows in 2021 were therefore not surprising, Hollands added, given the combination of negative real returns and rising inflation.

“In the main it will be people moving money into investments in search of higher returns, and I suspect some of the money has gone into the stock market.”

He added that cash levels have been fairly bloated since households saved a lot during the lockdowns.

Rachel Springall, finance expert at Moneyfacts, said savers may be turning to accounts where they can quickly access their cash for peace of mind.

“It is difficult to predict whether it would be a premature move for savers to lock into a deal now or if it is wiser to grab a more flexible option and see if rates rise in the weeks to come,” she said.

Data from the Office for National Statistics, published in September, found that UK households reduced their spending during Covid-19 by an average of £109.10 per week.  

This trend away from cash Isas is set only to continue, Hollands said, particularly with the increased cost of living due to hit this year, and the energy cap being lifted in April as well as tax rises.

However, investors should not move all their savings away from cash, he added.

“Everyone should have some rainy day cash in emergencies, any credible financial planner will tell you that, and quite rightly because surprises can come up and it’s important to have some liquid assets.”

sally.hickey@ft.com