Cash ISAs surge as savings hit record amount – but this is how you could earn more | Personal Finance | Finance
Savers put a record £11.7 billion into Cash ISAs in April, according to official figures.
The figure was the highest level since they were launched in 1999, according to Bank of England data.
Investment experts said while the figures are impressive, millions of Britons are missing out due to an ‘obsession with cash’.
This is because Britons could be making much bigger returns on their savings by investing in stocks and shares.
The record amount of money put into Cash ISAs came against the background of the fact many banks and building societies are paying poor interest rates. The standard instant access savings accounts is an average of just 2.1 percent.
At the same time, UK households are sitting on a staggering £251 billion in accounts paying zero interest.
Laith Khalaf, head of investment analysis at AJ Bell, said: “April was a blistering month for Cash ISA sales as higher interest rates pulled in hordes of punters.
“The £11.7 billion inflow was the highest since ISAs were introduced in 1999, according to Bank of England data.
“The record inflow into Cash ISAs suggests the cost-of-living crisis might be ebbing away, as consumers find themselves with a few extra pennies to tuck away for a rainy day.
“Savers have also probably shifted their focus away from standard savings accounts to Cash ISAs because higher interest rates have made them vulnerable to paying income tax on their returns.”
He added: “While savers continue to plough money into cash, there are plenty of accounts out there offering pretty stingy rates.
“Money in the average instant access account is earning just 2.1 percent, and £251 billion remains sitting in accounts paying precisely zero interest. There is still therefore a great deal savers can do to improve their returns simply by shopping around for better deals.
“The government is currently trying to address a flagging stock market by pushing for pension funds and investors to put money into UK companies, partly through the proposed launch of the British ISA.
“But it might also do well to reflect on whether the UK’s cash obsession is also holding back the UK stock market, and whether there is anything to be done which would encourage savers to make longer term investments with their money.
“The FCA has found that 8.4 million consumers had £10,000 or more wholly or predominantly held in cash. Figures from HMRC show that 3 million people have more than £20,000 held in a Cash ISA but haven’t put a dime into a Stocks and Shares ISA.
“In the tax year ending 2021, 1.6 million were lucky enough to be in a position to fill their full £20,000 ISA allowance; 40 percent of them chose to do so exclusively through a Cash ISA.”
Mr Khalaf said financial planning rules suggest holding three to six months’ expenditure in cash to provide liquidity in the event of unemployment or an emergency. At the same time there may well be reasons to extend beyond this level, for instance to save for a house deposit, or simply for ultra-cautious consumers.
But, he argued many people may doing themselves a disservice by holding too much in cash.
“Data from Barclays shows that over all the ten year periods stretching back to 1899, UK shares have beaten cash 91 percent of the time,” he said.
Analysis by AJ Bell also highlights the stock market returns which cash savers have missed out on over the last decade.
He pointed out that £10,000 saved into a Cash ISA at the beginning of 2014 would have been worth £11,222 after ten years. However, if invested in a global stock market tracker, it would have been worth £30,172, albeit with greater fluctuations along the way.
He added: “In the long run an abundance of caution may well lead to a scarcity of returns for cash savers.”
