New figures show how savings patterns are changing
Thursday 02 Jul 2020 Author: Laura Suter

The latest ISA data from the Government, covering usage in the 2018/19 tax year, shows that the worries about the Brexit vote and whether we’d have a hard Brexit hit investors and fewer chose to save their money in an investment ISA.

The Government figures show 450,000 fewer people subscribed to stocks and shares ISAs compared to 2017/18.

At the same time cash ISA use has leapt by a fifth, after years of falling figures. The introduction of the Personal Savings Allowance, which gave most people a tax-free allowance, seriously dented the popularity of the cash ISA in recent years, and the number of people subscribing to them has dropped every year since 2012/13.

The average amount we’re all putting into our ISAs stayed about flat, with £5,187 put into cash ISAs and £9,331 into stocks and shares ISAs, far below the £20,000 annual limit that every individual gets.

MORE WOMEN SAVING THAN MEN

Women have consistently been bigger users of ISAs, with more females signing up to them, but tending to prefer cash accounts rather than using an investment account. The latest figures show that at every age range more women are putting their money into ISAs than men.

However, the gender gap in terms of investment usage is closing slightly. In 2017/18, the latest year this data is available, 74% of women putting their money into an ISA kept it in cash, down from 80% the previous year.

The number using an investment ISA rose from 17% to 21% in that period too. In contrast just 64% of male ISA users are putting their money in cash, compared to 29% who use a stocks and shares ISA. The remainder did a combination of the two.

DRAWBACKS OF CASH SAVING

Opting for cash damages women’s wealth over the long-term. For example, the top cash ISA rate is currently just over 1%, showing the meagre returns that you get for keeping your money in cash.

With the Bank of England’s base rate having been so low for more than 11 years cash savers have struggled to grow their money. In comparison, over the past 10 years the MSCI World index of global companies has returned 10.7% on an annualised basis, while the FTSE 100 index of UK companies has returned 5.7% a year on average.

JUNIOR ISAS BECOMING MORE POPULAR

More people are using a Junior ISA to save money for their children. Junior ISA usage is up 5% year-on-year, with 954,000 people using them to save money for their kids or grandchildren.

However, frustratingly people are still relying on cash ISAs for their children’s savings, with cash accounts making up 70% of total Junior ISA usage – a figure that has stubbornly not budged since the previous year.

If you’re putting money away for up to 18 years you’re in the ideal place to be able to ride out the rises and falls in the stock market and have the potential to supercharge your child’s savings by getting higher returns.

The Junior ISA annual limit increased this year, meaning people can now put up to £9,000 away for their offspring, a big increase from the previous year’s £4,368. However, in reality people are putting away far smaller sums on average – £1,020. This means that the additional limit will likely only be used by very few wealthy families.

LIFETIME ISAS ALSO IN DEMAND

Lifetime ISA usage has risen dramatically in recent years. The accounts were first launched in April 2017, but it took a while before more than a couple of providers offered the accounts.

During the 2018/19 tax year, which are the latest figures available, more people started offering the accounts and that led to the number of people opening a Lifetime ISA jumping by 45%, with 223,000 accounts opened.

However, people were putting less money in the accounts, with the average subscription dropping by 16% to £2,709. This likely reflects the fact that in the first year of the Lifetime ISA you could transfer your entire existing Help to Buy ISA balance without it counting towards your annual £4,000 Lifetime ISA subscription, while in 2018/19 this was not possible.

The average subscription figure doesn’t include the Government bonus, so this means the average Lifetime ISA saver is getting £677 of free money from the Government each year, topping up the average annual savings to £3,386.

In total people have put £1,090,000 into their Lifetime ISAs since launch, which means the Government has handed out a total of £272,500 in bonuses to help bolster people’s savings for their first homes and retirement.

INNOVATIVE FINANCE ISAs LOSING APPEAL

The Innovative Finance ISA was launched in 2016 and initially saw usage soar, with the number of people using them rising from 5,000 in 2016/17 to 49,000 in 2017/18.

However, fewer people are now using Innovative Finance ISAs, with the number of people putting money into them dropping by almost a quarter between 2017/18 and 2018/19. However, this smaller pool of people that did use them put more money in, with the average subscription jumping by more than 50% to £8,632.

These figures hint that the Innovative Finance ISA is being used more by sophisticated investors, who hopefully understand the higher risks involved in these investments.

It’s likely that there will be a larger drop-off in the numbers in the most recent tax year, following the FCA’s ban on mass marketing for most of the products that fall into this bracket.

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