Investors ditch cash for self-select and fund ISAs

Private investors see investment opportunities in the market and are turning their backs on unattractive cash ISAs, according to research from Interactive Investor.

The survey of private investors shows that those just taking out a cash ISA in the current tax year has fallen from almost half (49%) to just a third (34%) compared to the previous 12 months. In contrast, the number only investing in funds and self select ISAs has gone up from 28% to over 43%. Investors can secure their ISA allowance with Interactive Investor right up until the midnight deadline on Monday 6 April. 

Rebecca O'Keeffe, head of investment at online stockbroker and fund supermarket Interactive Investor, said:

"With interest rates still stuck at rock bottom, investors are increasingly turning their back on cash ISAs and seeking better returns on their investments. The best available rates on cash ISAs are around 2.5% but inflation is currently running at over 3%. For those looking for income from their investments, cash ISAs are not the place to be right now.

"More investors than ever are looking to the flexibility that a self-select ISA offers, combined with the potential for better returns. For higher rate tax payers in particular, using all available tax advantages makes sense and ISAs are by far the most popular tax efficient investment according to our users."

The survey also revealed a 22% fall in the number of private investors buying their ISA from a bank or building society with a corresponding 40% increase in people buying an ISA direct from a fund supermarket or stockbroker. Recent IMA figures show that in December 2009 just under a fifth (18%) of all money invested in funds via an ISA was direct from the public via fund supermarkets and discount brokers.

Rebecca O'Keeffe added: "Investors are increasingly taking investment decisions into their own hands. More and more people now recognise the potential savings they can make by investing direct. And also the increased flexibility and transparency that holding your investments online can give you."