Cash ISA subscriptions surged 26 per cent in 2023/24 from 7.86 million in 2022/23 to 9.94 million, while stocks and shares ISAs saw just a 7 per cent increase with 283,000 new accounts opened, according to HMRC’s annual savings statistics.
According to the data, total contributions to adult ISAs were £103 billion across 15 million accounts, up from 12.5 million the previous year. Meanwhile, contributions to cash ISAs rose 67 per cent, Lifetime ISAs by 25.3 per cent and stocks and shares ISAs by 10.9 per cent.
Additionally, junior ISAs saw £1.8 billion contributed into 1.37 million accounts, with 36 per cent held in cash. The average contribution per Junior ISA account was £1,347.
Experts warn that while cash ISAs remain popular many savers could be missing out on long-term growth. They note that stocks, lifetime and junior ISAs offer higher returns and inflation protection, with financial advice helping manage investment risks.
Hargreaves Lansdown head of personal finance Sarah Coles says: “The cash ISA took centre stage for the second consecutive year – and we know it had a stunning third year too. In fact, it was a positive year across the board for ISAs, with stock markets making decent gains, and money flowing into both savings and investments across ISAs, Lifetime ISAs and Junior ISAs. However, it was rising savings rates that really turned heads.
“The Bank of England hiked rates for the first half of the tax year, before holding steady at an impressive 5.25 per cent. Meanwhile, the average fixed rate deal rose from 3.84 per cent to 4.6 per cent (Moneyfacts). The following year will show even more of a spike, as rumours over the future of the cash ISA saw money flood into accounts – as savers rushed to take advantage while they could.
“The rumours around the cash ISA have proven stubborn, and while they remain purely in the realms of speculation, cuts to the cash ISA limit have yet to be completely ruled out. Any change would be miserable news for diligent savers. If they’re saving for the short term, cash is the right home for their money, so they would end up being forced to pay more tax through no fault of their own. It means those who plan to use their cash ISA allowance this year might want to do so sooner rather than later, so they’re entirely sure where they stand.
“Right now, cash ISA rates are holding up impressively, but they have fallen a little, and the gap between the rates on easy access and fixed rate deals has closed. “We expect fixed rates to overtake easy access rates in the months to come, as the market normalises and savers are rewarded more for tying their money up. It means anyone who doesn’t need a slice of their cash for at a year or two should seriously consider tying it up in a fixed rate deal while rates are so strong. Don’t just settle for the rate available from your bank though, because online banks and savings platforms tend to offer much better deals.”
St. James’s Place head of advice Claire Trott says: “Today’s HMRC figures are the latest indication that the UK population is over-saved and under-invested. While a cash buffer is important – and no doubt brings comfort to savers, promising safe, guaranteed returns – individuals who chose a cash ISA over a stocks and shares ISA could be missing out on hundreds of thousands of pounds over the long term.
“For individuals saving for long-term goals the cash ISA approach can be risky. As shown by our analysis, inflation can quickly and substantially erode the real value of cash savings. Ultimately, those wanting to reap the rewards of their finances over the long term need to be invested in the market. While short term fluctuations and market volatility may deter risk averse savers, history shows that staying invested over time has consistently offered far greater potential for growth, and protected wealth against inflation. For those nervous about investing without guidance, speaking to a financial adviser can be a great way to get started, and can provide confidence you’re making the best decisions over the long term.”