Cash ISAs fall out of favour as investors flock to Stocks and Shares ISAs

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Hargreaves Lansdown was selected as the best Junior ISA provider.
Hargreaves Lansdown was selected as the best Junior ISA provider.

Cash ISAs are increasingly becoming unpopular with investors, while the number of Stocks and Shares ISAs has surged 57 per cent amid planned reforms to the investment wrapper.

An analysis of HMRC data by Investengine revealed that new Cash ISA accounts have fallen seven per cent over the last five years, despite recently announced plans for the government to reform the ISA system.

In the period between 2018/19 and 2022/23, the most recent years data is available for, the amount held in Stocks and Shares ISAs increased 37 per cent versus just a nine per cent increase in cash ISA value.

This has left a whopping £431bn held in Stocks and Shares ISAs, 46 per cent higher than the £294bn held in cash ISAs.

The news comes after Chancellor Rachel Reeves confirmed in the Spring Statement that the government was planning to reform the ISA system. These reforms are expected to be revealed in the Autumn Budget.

Cutting the cash ISA’s limit from £20,000 to £4,000 had been rumoured in the run-up to last week’s fiscal event, but Reeves ultimately abandoned the plans.

The planned reforms to the ISA regime have come largely from the government’s desire to boost the culture of retail investment in the UK.

There are now 3.8m retail investors with a Stocks and Shares ISA, up from 2.4m five years before, Investegine’s data revealed. In contrast, the number of cash ISA subscriptions has fallen from 8.5m to 7.9m.

The data matches recently released survey results that found just 31 per cent of Brits have a cash ISA, while just 16 per cent have a Stocks and Shares ISA.

However, the survey also revealed that 17 per cent of UK adults had never heard of the Stocks and Shares ISA, while a quarter said that while they’ve heard of it, they don’t know anything about it.

“Although reforms have been delayed, our analysis shows stocks and shares ISAs are in fact increasing in popularity without the explicit need to make cash ISAs less appealing,” said Andrew Prosser, head of investment at Investengine.

“Despite historically low interest rates during the pandemic having come to an end, the number of cash accounts being opened hasn’t bounced back.”