Shift in saving and investing habits during cost-of-living crisis

Key points

• According to HMRC's latest annual savings statistics published today, the number of cash ISAs subscribed to increased by 722,000 in 2022-23 compared to 2021-22
• Meanwhile, the number subscribing to stocks and shares ISAs decreased by around 126,000
• It is a similar story when it comes to amounts subscribed: up £10.7 billion to £41.6 billion for cash ISAs and down £6.2 billion to £28 billion for stocks and shares ISAs.

Commenting, Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “The latest data lays bare the seismic shift in saving and investing habits during a period of significant economic upheaval at the height of the unprecedented cost-of-living crisis. The reprieve in savings rates, following a run of consecutive interest rates hikes, is a key contributing factor to renewed interest in cash ISAs. As inflation soared and household budgets tightened, the need to maintain short-term financial resilience also took precedence for many households. This shift is marked by a decrease in subscriptions and amounts paid into stocks and shares ISAs and a corresponding increase in cash ISAs.

• Learn with ii: Stocks & Shares ISA Explained | Top ISA Funds | What is a Managed ISA?

“The savings landscape has once again shifted, with the Bank of England now cutting rates. The cost-of-living crisis, following the pandemic during which many people experienced a loss of income, underscores the importance of maintaining a rainy-day fund to tide you over when times are tough financially. Three to six months’ salary is a good rule of thumb. However, when it comes to long-term wealth generation, stocks and shares ISAs reign supreme, with history showing that equities tend to outperform cash savings in terms of returns, benefiting from the power of compounding and the growth of the underlying investments.”

Junior ISAs

• In 2022-23, £1.5 billion was subscribed to Junior ISAs, around 42.2% of which was in cash
• The average subscription in 2022-23 remained relatively constant at £1,220, a small decrease of 0.75% from the 2021-22 figure.

Myron Jobson says: “It is interesting that the average amount paid into Junior ISAs only saw a slight drop during the cost-of-living crisis, which underlines a strong desire among parents to secure their child’s future, embracing the 'from acorns mighty oak trees grow' maxim.

“It is baffling that over 42% of Junior ISA subscriptions were made in cash. Cash JISAs are frankly pointless other than as an option for teenagers approaching adulthood who might shortly need to use their pot and therefore want to remove the short-term risk of a sudden loss of value. Most JISAs are inherently very long term because they cannot be accessed until the child is 18.

“While stock markets can be incredibly volatile on a day-to-day basis, a glance at history shows that they have a knack for delivering consistent and convincing inflation-beating returns over long periods of time.

“As most Junior ISAs are 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 at a generous £9,000 for each tax year. But in reality, few are fortunate enough to maximize the allowance, with the average parent saving £1,220 in the 2022-23 tax year.”