ISA popularity seems to be dropping. According to the most recent data from the British Bankers Association (BBA), the amount of money placed into tax-free savings accounts at the end of August has dropped 15% compared to the same time last year.
In the period from January to August 2014, £9.3 billion was placed into cash ISAs by savers around the UK. Across the same portion of 2013, savers invested £11 billion into cash ISAs.
For the government, these figures are likely to come as something of a disappointment. July saw the introduction of the “super ISA,” which were first announced in the 2014 Budget by Chancellor George Osborne. This resulted in a number of reforms including a new, higher tax-free savings limit of £15,000. The restrictions in how much of this could be held as cash were also lifted, so for cash-only savers the allowance increase nearly threefold.
More than half of the money deposited in cash ISAs during this period, a total of £4.9 billion, was invested in just a single month. The month in question was July, so this disproportionately large figure is likely down to people holding onto their money until the changes to the ISA rules came into effect.
At the time, the large amount of money deposited in July was taken as good news. It seemed to explain a slow start to the year’s ISA activity, as savers held back in order to take advantage of super ISAs. As BBA Chief Economist Richard Woolhouse put it, “it seems people were just waiting until the new rules came into effect to invest their money.”
However, with figures now showing data for the whole of July and the following month, this optimism seems to have been not entirely well-placed. With ISA deposits still 15% below the previous year’s levels, it appears that 2014 has still marked a fall in the fortunes of ISAs even with the introduction of the new, more attractive rules.
In their place, new options such as retail bonds and peer-to-peer lending are growing in favour. These kinds of options are a form of investment rather than straightforward saving, and accordingly they come with a level of risk. However, amidst low ISA rates it seems many savers are wiling to accept those risks in the pursuit of better returns.
Poor ISA rates have dropped further, and this could be partly because of the fall in ISA deposits. A two year fixed rate ISA will now net you 1.97% interest at most, whereas in July the best offer was 2.06%.