2020-21 tax year: the time the cash ISA was no longer king

interactive investor experts comment on annual savings statistics from HMRC.

Key points

The amounts subscribed to Stocks and Shares ISAs has increased by £10 billion since 2019 to 2020.

• £72 billion was subscribed to Adult ISAs in 2020 to 2021, a decrease of £2.4 billion compared to 2019 to 2020.
• This decrease was driven by the fall in cash ISA subscriptions, which decreased by £12 billion.
• 12 million adult ISA accounts were subscribed to in 2020 to 2021, down from 13 million in 2019 to 2020. 
• The number subscribing to Stocks and Shares ISAs increased by around 860,000. The share of accounts subscribed to in cash has fallen to 66% of accounts, compared to 75% in 2019 to 2020.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “With adult stocks and shares subscriptions at their highest in over a decade, today’s HMRC data highlights that extraordinary times influence savings and investments behaviours, as adults rediscovered the stock market. The 2020-21 tax year was the year when the cash ISA was no longer king, with account openings down 17%. Stocks and Shares ISA account openings reached a new record high of 3.6 million, with subscriptions also reaching a new high of almost £34 billion.

“Meanwhile, cash ISA account openings fell by 1.6 million, and subscriptions fell by £12 billion on from the 2019-20 tax year.

“The overall figures are arguably a tale of the haves and have-nots. The economic fallout of Covid hindered savings, contributing to the overall decrease in contributions to adult ISAs. Many Britons who suffered a loss of income through unemployment or enforced reduced working hours during the pandemic simply could not afford to contribute to cash savings and investments, which is perhaps why cash ISA subscriptions and openings have fallen.”

Myron Jobson continues: “On the other hand, many consumers found themselves with more money in the bank, and more time on their hands, to invest during the pandemic, resulting from a dramatic dip in their expenditure on travel and outdoor entertainment because of strict lockdown restrictions.

“But the onset of the cost-of-living crisis off the back of the pandemic lays bare the importance of maintaining a rainy-day fund to tide you over when times are tough financially. Three months’ salary is a good role of thumb, and perhaps even better in these difficult times, six.”

Alice Guy, Personal Finance Editor, interactive investor, says: “Although overall investment is down, Stocks and Shares ISAs have had a stonking year with subscriptions up an amazing 32%.

“The value of Stocks and Shares ISA subscriptions has skyrocketed and is up an eye-watering 40%. The figures suggest that fewer investors, probably wealthy investors, are investing more, as the value of subscriptions has climbed more than the total number.

“But it’s a mixed picture as cash savings are under pressure. The total amount of cash on deposit fell 8% from 2020 to 2021, suggesting many cash-strapped savers were forced to raid their savings pots during the pandemic.

“On a more positive note, it’s encouraging to see that women are saving for the future. Among ISA subscribers in 2019 to 2020, 52% were women. Although, it’s concerning that so few women are investing in stocks and shares. Only 19% invested in Stocks and Shares ISAs compared with 28% of men. It’s likely to widen the long-term gender wealth divide as stocks and shares tend to grow more over time than cash investments.”

Junior ISAs

• In 2020 to 2021, £1 billion was subscribed to Junior ISAs, around 57% of which was in cash.
• Average subscriptions in 2020 to 2021 were £1,133, a 19% increase on the 2019 to 2020 figure.

Myron Jobson says: “Subscriptions and contributions to junior cash ISA accounts still outstrips those made to the stocks and shares variant, which is baffling because of the corrosive impact of inflation on cash. While stock markets can be incredibly volatile on a day-to-day basis, a glance at history shows that they have a knack of delivering consistent and convincing inflation-beating returns over long periods of time.

“As most Junior ISAs are going to be inherently very long term, because they cannot be accessed until the child is 18, there is ample time for short-term bumps in stock markets to be ironed out.

“The Junior ISA allowance stands a generous £9,000 for each tax year. This means that a family of four can now squirrel away £58,000 in ISAs a year tax-free, which is considerable. In reality, few are fortunate enough to maximise the allowance, with the average parent saving £1,133 into these accounts in the 2020-21 tax year.”

Child Trust Funds

Myron Jobson says: “The fact that most Child Trust Fund subscriptions were in the £1 to £249 band and around 4.6 million received no subscription fuel concerns that accounts have been forgotten about or lost.

“For the youngest holders, there are still eight years before their CTF reaches maturity. If you hold a CTF for your child, it is worth considering transferring to a Junior ISA. It is a no-brainer in most instances as Junior ISAs tend to have better rates on cash savings, more investment options and lower charges.”