The surge in cash Isa makes savers vulnerable to inflation

Financial experts warn that as the level of funds held in various personal savings accounts (Isas) rises to a record 620 billion pounds in 2019-20, the surge in cash Isas will give depositors a “negligible return”.

The rising trend in savings recorded in the 2019-20 tax year may accelerate during the pandemic, as the lockdown restrictions make it difficult for those with disposable income to spend money on travel or outing.

Approximately 13 million adult Isa accounts were opened in 2019-20—an increase of nearly 2 million from the previous tax year. According to statistics, after an increase of 6% in 2018-19, Isas’ total accumulated savings hit a record high. Announced figures Reported by the UK Revenue and Customs Service on Tuesday.

Although the annual Isa statistics show a high level of savings, most of the money goes into cash Isas, which offers low interest rates and may make depositors vulnerable to Rising inflation.

Approximately 300,000 new subscriptions were used for stocks and stock Isas, and 1.2 million new subscriptions for cash accounts. The amount of cash invested in Isas increased by 4.8 billion pounds or 11% over the previous year; for stocks and stock Isas, it increased by 1.6 billion pounds or 7%.

Tom Selby, a senior analyst at investment broker AJ Bell, said there is nothing wrong with investing in cash Isas, especially for those who need quick access to capital. “But the return provided is still insignificant. According to Moneyfacts, the best cash Isa only pays 0.46%,” he said.

He said that inflation poses “one of the biggest risks” to cash investors in the next few years, and believes that stocks and Isa stocks provide better protection against the rising cost of living. “Anyone who has a long-term vision, is worried about the impact of price increases on their funds, and is willing to take some investment risks, should consider investing at least part of their portfolio in stocks and stocks.”

Amy Pethers, a financial planner at the wealth management company Brewin Dolphin, said this is a “lost opportunity” for depositors, noting that research shows that the actual value of cash held from 2011 to the end of 2020 will decline, while FTSE’s entire shareholding The total return of the index over the same period was 46%.

“If these investments are held in Isa, you will get the added benefit of not having to pay taxes on income or growth,” she said. Individuals can invest £20,000 into Isa in each tax year without having to pay taxes on stock dividends, capital gains or interest.

Slightly more women than men participated in Isa this year, 5.4 million and 4.8 million respectively. However, the average subscription amount for women in Isas is nearly £3,000 lower than the average for men, which reflects the lower average income of women and less secure sources of income. Compared with men, women are also more likely to buy cash Isa alone, and less likely to subscribe for stocks and stock Isa, which makes them more likely to suffer losses due to inflation in the long run.

According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, Isa “Gender differences“It has doubled in the past ten years to 3,000 pounds, and if women continue to invest money in low-return options, this situation will be further expanded. “Unless women participate in investment, regardless of their ability to contribute to the future Whatever is left, the gender Isa gap will continue to widen. “

Number of people who signed up Lifetime Isa More than doubled to 545,000. Designed for first-time home buyers and retirement savers, this type of Isa can be opened before the saver’s 40th birthday, and all payments to them will receive a 25% bonus from the government, up to a bonus of £1,000 per year .

Selby of AJ Bell said that many people who invested in Lifetime Isas (Lisas) before the pandemic will then use the money to buy a house in 2020-21.

“The Lisa fund is tax-free for first-time home purchases, which will help thousands of people step up the property ladder — and possibly combined with stamp duty reductions, to boost the house prices we have seen in the past 12 months. .”

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