Since they were introduced in 1999 the cash ISA has become one of the county’s safest and most popular ways to save. However as the rates of interest drop and the strength of the stock market rises, more and more customers are switching to the higher risk equity ISA.
The Investment Management Association has revealed that the amount of new savings being trusted to the equity ISA has reached its highest levels since 2001 and fund companies, stock brokers and financial advisors have seen record numbers of new business.
The government is keen to support both ISA’s and has increased the current annual allowance. The equity ISA allowance has risen from £7, 200 to £10, 200 since April.
The financial crisis has hit the cash ISA hard, with the most competitive accounts offering 3 per cent in interest and average interest rates which have halved since last year alone. Shares bought in FTSE 100 companies on the other hand are offering returns of up to 5 per cent more. This means that savers have been enticed into investing in shares to make the same amount they would have made with cash before the financial crisis.
There certainly are great financial benefits to be gained by the adventurous saver who switches to the equity ISA, however the change is irreversible once made and could result in a loss. A number of usually careful investors have been persuaded to move towards expensive shares based packages without being fully aware of the risks involved.
Cash ISA’s may remain the safest form of saving but it is unclear whether their popularity will hold out in coming year.