An economic downturn could hit the ISA market in the next five years, according to independent market analyst Datamonitor.
It believes a future downturn could particularly affect stocks and shares accounts.
The predicted slump will come after a strong period for ISA sales. Figures from Datamonitor show ISA sales reached £33.3bn in 2006 as customers took out a record 13,788 ISAs during the year.
Mini cash ISAs, the most popular, grew by 6.5% since 2002, in terms of annual sales value. The average value of mini cash ISAs reached £2,178 between 2002 and 2006. The data also shows providers sold fewer maxi ISAs in 2006 than 2002 and 99% of maxi ISAs comprised of stocks and shares.
Katie Langridge, financial services analyst at Datamonitor, says: “Despite the current promise of the ISA market, it will over the next five years be hit by a stock market downturn, which will damage sales of the stocks and shares versions of the product.
“However, the cash form of ISAs should continue to do well and may even benefit from investors’ reluctance to invest in stocks and shares, as the overall ISA market is forecast to grow by 4.6% to 2011.”
Datamonitor also says deposits will account for more than half of retail savings and investment in four years.
Data shows banks and building societies sold £834.4bn of deposits products in 2006. The analyst anticipates the value of deposit product sales will reach £1,182.8bn by 2011.
Langridge says: “Customer needs are being taken into consideration by banks and building societies, as more accounts are instant access or no notice and more are available to be operated online or over the telephone.
“In both cases, these ongoing trends are focused on improving the convenience of banking for customers and appear to be set to continue.”
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"A tax-free mini-cash ISA is certainly more attractive than a standard savings account and returns have improved over several months thanks to interest rate rises.
"However, it is doubtful whether this apparent boom in cash ISAs is a useful indicator as to whether they have encouraged the savings bug. Since the UK household savings ratio has tested long-term lows over the same period.
"My hunch is that this is simply money that would otherwise have been in a conventional savings account. A better measure of the appetite for long-term savings will be when investors start moving from cash back into the markets."
Jason Hollands works at F&C Investments.IFAonline
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