Cash ISA saving falls by a third as tax rules change

There has been a dramatic drop in the number of Cash ISAs being opened and in the amount saved in the wake of the Brexit vote.

Official figures from the taxman show there were 1.6 million fewer accounts taken out in the last financial year - falling to 8.5 million.

The biggest fall was reserved for the amount saved - dropping by £19.5bn in 2016/17 to £39.2bn.

It represents a reduction of 33% on the previous tax year, HM Revenue & Customs (HMRC) said, at a time when other data has shown household saving rates hitting all-time lows during 2017 as prices rise at a higher rate than wages.

Financial analysts blamed the introduction of the personal savings allowance last year, which allows basic rate taxpayers to earn £1,000 of savings without paying any tax (£500 for higher rate taxpayers).

It means the interest to be earned from many bank account savings is on par with Cash ISAs - whose best rates are currently only around 1%.

Analysts suggested the cut in interest rates in the wake of the EU referendum result were also a factor.

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At the same time, the HMRC figures showed the amount of money invested in stocks and shares ISAs had overtaken the total held in the cash versions for the first time on record.

It reported totals of £315bn versus £270bn respectively.

Danny Cox, chartered financial planner at the investment firm Hargreaves Lansdown (Frankfurt: DMB.F - news) , said: "Low interest rates and the new personal savings allowance have precipitated a collapse in cash ISA saving.

"While understandable, this may prove to be short-sighted as neither low interest rates nor the personal saving allowance are necessarily a permanent fixture of the financial landscape, though it's fair to say both do look set to remain in place for the foreseeable future."

He added: "ISAs are the saver and investor's friend and should be at the heart of every portfolio.

"Record (LSE: REC.L - news) subscriptions to stocks and shares ISA are a reflection of interest rates being at such a low ebb and the stock market being pretty much the only game in town if you want an income from your savings."