Cash Isa take-up slumps amid cost of living crisis

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.

"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."