Low Returns Drive Cash ISA Transfers

30 March 2016

· Cash ISAs deliver average annual returns of 1.86 per cent since 2011
· Returns on Prudential’s PruFund range draw savers out of cash ISAs
· ISA savers seeking higher returns to consider moving their money out of cash

With cash ISAs delivering average annual returns of just 1.86 per cent since 20111, many investors are actively reconsidering their options and looking to potentially more profitable stocks and shares based alternatives, according to new analysis from Prudential.

Since launching the PruFund range of funds within an ISA wrapper, Prudential has achieved sales of £665 million2, with over a half (57 per cent) of ISA transfers to Prudential coming directly from cash ISAs3.

Following the significant increases in the annual ISA allowance4 in July 2014, the average subscription to a cash ISA account jumped from £3,704 in the 2013/14 tax year to £5,924 in the 2014/15 tax year – a rise of 60 per cent. As such, UK cash ISA holdings were worth a
total of £237 billion at the end of the 2014/15 tax year5.

While rock-bottom inflation has seen cash ISA investors make a return in real terms for the first time in many years, the average return on a cash ISA on 1 January this year was still just 1.46 per cent6.

John Warburton, distribution director at Prudential, said: “There’s no denying that returns on cash ISAs have been disappointing as the low interest rate environment persists.

“Higher allowances over the past couple of years have offered even greater opportunities for investors to save tax free, and with the end of the tax year fast approaching there’s still time to take advantage of this year’s allowances.

“For those looking for the potential of higher returns over the medium to long term, and the flexibility to select funds that could match their investment goals, a stocks and shares ISA may be a better option.”

In February 2015 Prudential made its market-leading PruFund range of funds available for investors through the Prudential ISA7, widening the options available to savers at a time when ISAs are increasingly seen as a major part of retirement income planning.

In its first year the PruFund Growth ISA fund achieved a return of 7.258 per cent, and for those looking for a fund with a lower risk profile and equity exposure, the PruFund Cautious fund returned 3.029 per cent over the same period.

While still a relatively new addition to the Prudential ISA wrapper, the PruFund range of funds has been one of the recent success stories in the UK’s long-term investment and savings marketplace, with significant demand from customers who continue to be attracted by both the performance track record and the benefits of a smoothed return to manage market volatility and risk. Across the entire PruFund range, which includes, bond, pension and ISA products, funds under management total £16.5 billion10.

John Warburton continued: “There’s huge demand for an investment with low volatility with the potential for better returns so launching PruFund on the Prudential ISA was a logical step for us. Since February last year we’ve seen thousands of savers vote with their feet, investing £665 million by the end of December, with over half of transfers into the product coming directly from cash ISAs.”

The PruFund range is available through the Prudential ISA, which is offered through intermediaries and Prudential Financial Planning, the company’s direct advice service.

Notes to editors

Average return on cash ISAs (fixed and variable) since 2011 provided by Moneyfacts, March 2016. Calculations based on ISA rate as at 1 January 2011/12/13/14/15/16.

Date (1st month) 

Jan-10 

Jan-11 

Jan-12 

Jan-13 

Jan-14 

Jan-15 

Jan-16 

Average ISA Rate 

2.05%

2.19%

2.56%

1.87%

1.64%

1.45%

1.46%

As at 31 December 2015. Total premiums receive and assumes all regular premiums are consistent and paid monthly to the end of the year.

As at 31 December 2015.

In 2014, the Government increased the ISA allowance to £15,000 from July from £11,520. The current maximum is £ £15,240.

According to HMRC Individual Savings Account (ISA) Statistics, 2015.

Current average return on a cash ISA (fixed and variable) provided by Moneyfacts, March 2016.

The Prudential ISA is provided by Capita Financial Investments.

From 26 February 2015 – 26 February 2016, gross of all applicable charges.

From 26 February 2015 – 26 February 2016, gross of all applicable charges.

10 As at 31 December 2015.

 

Media contacts

Louise Bryans

020 7004 8280

Louise.Bryans@prudential.co.uk

Darragh Leeson

020 7004 8081
darraghuk.leeson@prudential.co.uk