The latest figures on ISA inflows - in combination with the newly raised annual limit, low interest rates and rising inflation - have led Royal London to warn savers against a 'dash for cash'.
The warning comes as aggregate figures for the 2014/15 and 2015/16 tax years released by HM Revenue and Customs (HMRC) show some £120bn being directed into cash ISAs over the period. In comparison, £43bn was invested into stocks and shares ISAs.
Royal London said the surge in flows into cash followed the large increase in the limits for cash ISAs in July 2014 - when the annual cap was raised from £5,760 to £15,000 - and predicted this trend would only continue following the further increase in the overall ISA limit to £20,000 from last month.
More detailed analysis by HMRC of the 2014/15 tax year data suggested lower-income investors are more likely to favour cash. In 2014/15, all income groups under £30,000 per year were more likely to hold their ISA savings in cash-only products, whereas the reverse was true for those earning more than £30,000 per year.
The HMRC analysis also suggested younger people were particularly likely to hold money in cash. As an example, Royal London pointed out that, of the £971m subscribed into ISAs by the under-25s, £927m went into cash-only ISAs - by far the highest proportion of any age group.
In February, a Royal London policy paper, The Curse of Long-Term Cash, argued investors had lost £100bn in returns over the last decade by being invested for the long term in low-return cash ISAs rather than investing in a diversified stocks and shares ISA.
Royal London personal finance expert Helen Morrissey (pictured) said: "Saving in cash clearly has a part to play for short-term emergencies and rainy-day savings."
However, Morrissey pointed out a combination of low interest rates and rising inflation meant money in a cash ISA would be "losing spending power, year after year".
She added: "These latest HMRC figures reinforce the concern investors are holding excessive amounts in accounts with low interest rates that deliver negative real returns once account is taken of inflation.
"The government needs to think carefully about its ISA policy and should consider reintroducing separate lower limits for cash ISAs to avoid a ‘dash for cash' costing savers dearly'."
Joining London team
Previously at Old Mutual Wealth
Will introduce a cap on cost of care
Inertia has become a key policy mechanism