Compounding the misery for product providers who just saw their worst drop ever in new ISA sales, th...
Compounding the misery for product providers who just saw their worst drop ever in new ISA sales, the British Bankers' Association says the latest Inland Revenue figures show that people buying ISAs are overwhelmingly using them as a place to store cash rather than acquire equities.
Cash ISAs acounted for 62% of the overall amounts ut into ISAs during the first nine months of the last fiscal year according to Revenue figures.
This does not make sense from an investment point of view, of course, as returns on cash invested fell as interest rates hit their lowest for 40 years.
The rational explanation for this behaviour, according to the BBA is that the massive fall in the value of equities during the 2001-2 tax year meant that cash holdings became realtively healthy investments.
"Customers feel more comfortable with straightforward cash products," the BBA's director of statistics David Brooks says.
What the BBA does not say is that the move to cash will hurt the ISA industry in other ways.
For example, many online brokers are struggling to generate business in the current climate, but with ISA account holders not trading shares, they are losing money hand over fist.
And the investors who are overweight in cash are missing out some spectacular gains in sectors such as building and construction and banking, where share prices have risen to new year or even multi-year highs in recent months.
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