More investors are turning towards other routes for saving their money, as usage of the Cash ISA drops.
Figures released from UK Finance show that investment in Cash ISAs in March were just £322m, representing a 42 per cent decrease compared to a total of £773m invested in March 2017.
Throughout the 2017/18 tax year, UK consumers withdrew around £7.6bn from Cash ISAs held at high street banks, while investing more than £16.7bn into taxable savings accounts under the Personal Savings Allowance that was introduced last year.
Follow-up figures from peer-to-peer lender Zopa suggests that if a higher-rate tax payer was to invest an additional £20,000 each year in cash via the PSA at 1 per cent for five years, they would net £2,664 in interest after paying a total of £374 in tax during that period. In an Innovative Finance ISA, the same process would net £12,660 in interest.
“This is further evidence that people are abandoning the Cash ISA en masse,” said Andrew Lawson, Zopa’s chief product officer. “However, with another interest rate rise on the horizon, people who rely on the PSA need to keep a close eye on their savings so they don’t get caught out.
“Customers really could lose out if they use the PSA instead of the ISA, because the PSA is only tax free for one year while investments into the ISA are tax free for life. Of course, there are plenty of alternatives out there – such as the IFISA – which have higher returns than Cash ISAs and are covered by the tax-free wrapper but come with a bit more risk.”
Earlier this week, Zopa reported that its customers have now invested more than £100m via its IFISA tax wrapper, not including transfers of previous years’ ISAs or any interest earned on IFISA money. Since launching it to the public in January 2018, 60 per cent of new customer funding on the platform has been put through its ISA product.