Stocks and Shares ISAs Overtake Cash ISAs: How and Why Has This Happened?

Zak Goldberg  |

For generations, the concept of savings revolved around depositing cash into fixed-rate bank accounts. Even as more flexible savings accounts such as ISAs emerged, the focus remained on building wealth through the accumulation of cash.

We have seen a significant shift in recent times, however, and particularly since the world emerged from the depths of the Great Recession. As a result of this, savers are increasingly inclined to seek out a more diverse range of assets, which are now available through several reputable providers.

In this post, we will look at the rise of products like stocks and shares ISAs, and ask what this means for the financial marketplace.

How Stocks and Shares ISAs Overcame the Cash Alternative

According to recent data released by HM Revenue & Customs, the amount of capital deposited in stocks and shares ISAs has now overtaken the value of traditional cash accounts. More specifically, it is estimated that £315 billion is currently invested in stocks and shares ISAs, while just £270 billion is being retained in cash. This is also part of a wider trend in the worlds of business and consumerism, where the importance and value of cash has continued to decline in a contracting global economy.

While this shift has been at least partially triggered by changes to the economic landscape, it can also be attributed to the introduction of a new, personal savings allowance tax back in 2016. This allowed basic-rate tax payers to receive an impressive £1,000 of cash interest tax-free each year, enhancing the appeal of diverse stocks and share options in the process. Not only this, but a low base interest rate and sustained declines in the average UK savings' rate has also impacted on the minds of consumers, who are now seeking out higher returns through alternative asset classes.

The result of this is that the number of people subscribing to stocks and shares ISAs has increased incrementally in 2017, from 2.53 million last year to a cumulative total of £2.58 million. While this is only a small increase, it is noticeable as it reverses a trend for sustained declines during the course of the previous five years. The question that remains is whether this represents a long-term trend, or one that will quickly reverse once the macroeconomic climate in the UK begins to improve.

What Should We Expect in the Future?

Despite the rise of stocks and shares ISAs and the type of competitive products being marketed by providers like Bestinvest, there is no guarantee that the decline of cash savings will continue indefinitely. After all, better-than-expected inflation data has made it increasingly likely that the Bank of England (BoE) will increase the base interest rate at their next meeting in October, which would automatically improve economic sentiment and send savings' rates soaring proportionately.

The new personal saving allowance is also an impermanent fixture of the UK's economic landscape, which could easily be amended in line with the prevailing economic climate. This is certainly a space to watch, but there is no doubt that stocks and shares ISAs are now a popular and familiar element of the modern savers' vocabulary.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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