The Great ISA Boom: Why Brits Are Pouring Record Billions into Tax-Free Savings

Government data shows that there was a total of £872 billion sitting in ISAs at the end of the 2023/24 tax year. 

While Cash ISAs, which are focused more on savings, have proven themselves to be more popular among investors, the lion’s share of money in these savings accounts was in Stocks and Shares ISAs, which are instead based on investing in the stock market. 

As much as £511 billion of all money in ISAs can be found in stocks and shares accounts. This is down to the historically higher growth trends associated with stock market investing. 

Recent figures have also shown that the 2023/24 tax year saw more records broken among investors, with around £103 billion subscribed to adult ISAs. This represents an increase of £31.4 billion over the tax year prior. 

But why are so many individuals turning their attention to Individual Savings Accounts? Let’s take a deeper look at the great ISA boom and why the saving strategy has resonated with so many investors:

The Tax-Efficient Choice

In terms of tax-free efficiency, there’s no better way to grow your wealth and access money more flexibly than by opening an ISA. 

Pensions may also offer great tax-efficient benefits, but the inability to access your money before you reach retirement age makes Individual Savings Accounts a leading choice for many UK households that are aiming to build accessible savings, whether it’s for a rainy day, a major purchase, or simply to generate greater levels of wealth over time by investing. 

ISAs empower savers and investors to access variable or fixed-rate interest or to build stock market portfolios where all profits are entirely tax-free. This means that you won’t have to pay any capital gains tax (CGT), income tax, or even dividend tax on your earnings. 

While it’s possible to open as many ISAs as you like (aside from the Lifetime ISA, which is one per person), account holders must adhere to a £20,000 contribution limit each tax year, and this cap is in place for the contributions to all your ISA accounts combined. In the case of Lifetime ISAs, the annual allowance is set at £4,000. 

Embracing the Investment Boom

We may be a nation that loves the security of Cash ISAs, but in recent years, more Britons have warmed to the performance of stocks and shares, and the total money contributed to Stocks and Shares ISAs has generally been growing. 

While less than £10 billion was invested in Stocks and Shares ISAs back in the 2008/09 tax year, average annual amounts subscribed since the pandemic have surpassed £30 billion, and there’s a good reason for the growing interest in investing. 

With Wall Street currently in the midst of an artificial intelligence boom, many investments have been growing at a substantial rate. In fact, the Compound Annual Growth Rate (CAGR) of the S&P 500 over the past three years currently stands at 23.1%.

This attractive rate of returns is helping to woo more Stocks and Shares ISA investors, and the performance of the investment-focused accounts appears to be consistently outpacing their cash counterparts. 

Over the past 10 years, the average return on Stocks and Shares ISAs has been 9.64% annually, while lower-risk Cash ISAs have averaged just 1.21% in comparison. 

The Flexibility of ISAs

Another key reason behind the recent success of ISAs is the fact that many accounts offer easy access to funds at short notice. This is proving to be increasingly desirable in recent years as the financial crashes of 2008 and 2020, recent periods of high inflation, and the cost-of-living crisis all weigh heavily on the minds of individuals. 

While building pension pots ahead of retirement remains one of the most reliable forms of tax-efficient investing, the recent ISA boom indicates that we’re increasingly keen on flexible investing in a way that allows us to access our money earlier. 

While Stocks and Shares ISAs are designed to be used over a period of 5-10 years at a minimum, they can be accessed before retirement age, offering a degree of flexibility that pensions can’t compete with. Some platforms, like Wealthify, offer fee-free withdrawals on Stocks and Shares ISA investments, making it easier than ever to access your money. 

The ISA Boom

With a record-breaking £103 billion subscribed to adult ISAs in the 2023/24 tax year, it’s clear that Britons are becoming increasingly attracted to the tax efficiency of saving and investing more flexibly. 

Easy access to funds and a simplified approach to investing have allowed more individuals to begin their investment journeys and take their first steps towards growing their wealth. At a time when economic uncertainty is still on the minds of millions of UK residents, the ISA boom may be the perfect option for saving with a safety net.