The wrong type of ISA

New statistics from HMRC show over £300bn invested in cash ISAs.

New statistics from HMRC show over £300bn invested in cash ISAs.

ISA subscriptions
Source: HMRC

One of the many knock-on effects of the pandemic has been that HMRC’s annual updating of statistics has suffered delays. As a result, details of ISA subscriptions and holdings for 2019/20 have only just emerged. Among many interesting facts, the data shows:

The continued dominance of cash ISAs is, at least in part, a reflection of the lack of financial planning advice received by many ISA investors. The personal savings allowance, introduced in 2016/17, means that basic rate taxpayers (calculated using UK-wide rates) pay no tax on their first £1,000 of interest and, similarly, £500 of interest is tax free for higher rate taxpayers.

At current interest rates, it takes a considerable amount of capital to exceed even the lower threshold so taking out a cash ISA could be of questionable value compared with an ordinary deposit, which might pay a higher interest rate. However, the ISA framework could be useful to you in other ways, so advice is essential before taking any action on a cash ISA.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.