InvestmentsJun 8 2022

Cash Isa take-up slumps amid cost of living crisis

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Cash Isa take-up slumps amid cost of living crisis
HMRC figures show drop in cash Isas over past tax year. Photo source: Dreamstime via Fotoware

Britons' take-up of Isas has fallen year-on-year, with both adult and junior Isas witnessing a decline, according to figures from HM Revenue & Customs.

Earlier today (June 8), HMRC published its Annual Savings Statistics report, which showed approximately 12mn adult Isa accounts were subscribed to in the 2020-21 tax year, down from 13mn in 2019-20.

The number of cash Isas subscriptions fell by 1.6mn compared to 2019-20, while the 940,000 junior Isas were subscribed to in the same period, the ninth full financial year since the scheme was launched, down from 1mn in 2019-20.

According to chartered wealth manager David Robinson, co-founder of Wildcat Law: "Less money is going into the family pot, reflected by lower levels of Jisa and cash Isa savings.

Investing in a Stocks & Shares Isas is a much better way to grow and maintain their wealth.Joshua Gerstler, The Orchard Practice

"As more and more families struggle to pay their daily bills, one of the first things to go is savings, and it appears that yet again the real losers from the economic downturn will be children, with Jisa subscriptions down by roughly 6 per cent."

The chart (below) indicates that approximately £72bn was subscribed to adult ISAs in 2020-21, a decrease of £2.4bn on the previous tax year.

He warned the UK could expect this trend to continue as the cost of living crisis bites this year, adding: "In the longer term, this will put increased pressure on those from less wealthy backgrounds looking to attend university.

"Those that are still saving are taking a punt with their savings as stocks and shares Isa savings have increased, while cash savings are significantly down."

His comments on stocks and shares Isas highlighted the outlier when it came to Isa subscriptions over the past tax year. While cash Isas were on the ebb, investment Isas saw steady growth.

Stocks-and-shares Isas on the rise

According to HMRC figures, the share of accounts subscribed to in cash has fallen to 66 per cent of accounts, compared to 75 per cent in 2019-20.

The number of people subscribing to stocks-and-shares Isas increased by around 860,000. 

The amounts subscribed to stocks and shares Isa has increased by £10bn since 2019-20.

Amid concerns about eye-watering inflation levels, which the Bank of England has previously warned could hit 9 per cent to 10 per cent CPI growth this year, the rising interest in stocks and shares Isas is to be welcomed.

Joshua Gerstler, chartered financial planner at Borehamwood-based The Orchard Practice, said: "It's great to see the amounts people are putting into cash Isas has decreased, with people realising that investing in a stocks-and-shares Isa is a much better way to grow and maintain their wealth.

"Investing and saving were at a high during the pandemic and as people have returned back to normal life, their discretionary spending has increased and therefore the amount invested and saved has decreased.

"The sensible ones have maintained their monthly or annual contributions and will reap the benefits for many years."

InvestingReviews.co.uk chief executive Simon Jones said: "It's taken a long time, but finally the message is getting through to people that cash ISAs offer no protection against the corrosive power of inflation.

Household finances

This came as UK Finance published its own set of figures for the first quarter of 2022, as part of its Household Finance review, which suggested mortgage application activity was still performing in line with pre-Covid levels, and remortgaging appeared robust. 

However, Just Mortgages's national operations director, warned this outlook could change significantly. 

John Phillips said: “What these figures don’t yet show is the recent shake-up in household budgets with interest rates, fuel, energy, and food costs all rising steeply and eating away at take home pay especially for lower-income families and typically first time buyers.

"The chancellor has warned that interest rates are expected to rise to 2.5 per cent by the end of the year and, with the cost of living rising rapidly, complying with affordability conditions will become increasingly difficult."

Phillips said Just's brokers have reported that competition for houses remains "very high", and borrowers' key concerns are securing a mortgage offer and having the ability to proceed when they find the house they want.

However, he added: “In the remaining half of 2022, mortgage demand should remain strong as borrowers look to secure a competitive purchase or re-mortgage deal before inevitable rate rises.

"And, with reducing housing stock, the speed of offer could overtake rate as the most important factor to borrowers. Professional mortgage advice looks set to be more important in 2022 than for many years previously."

simoney.kyriakou@ft.com