Investors Turn to Innovative Finance ISAs as Cash ISA Popularity Tumbles

The amount of investment being placed in Innovative Finance ISAs (IFISAs) has increased by 56.5% in the past year, while traditional cash ISAs have fallen dramatically out of favour, according to new research.

Peer-to-peer real estate investment platform, easyMoney, analysed the latest figures on the annual performance of each ISA offering – Cash, Stocks & Shares, Lifetime, and Innovative Finance – to see where investors are choosing to place their money, and how this has changed during the past year of economic turmoil.

The data shows that across all four ISA categories combined, the number of annual subscriptions was 11,752 in the year 2021-22.

This marks an annual decline of -3.8%.

The biggest decline by far has been seen in Cash ISAs, and while they remain the most popular in terms of total volume of subscriptions (7,139), this figure has fallen by -11.4% annually – the only ISA type to have seen a decline.

However, alternative ISAs are proving increasingly more popular and showing greater resilience despite the current economic picture.

Lifetime ISA subscriptions have increased by 19.7%, Stocks & Shares ISAs are up 9.6%, and IFISA subscriptions are up 6.3%.

While IFISAs may have only seen the third largest increase in subscription numbers, they have enjoyed the largest growth of all ISA types when it comes to the sheer amount of money being invested, increasing by 56.5% in the past year.

Lifetime ISA investment has grown by 14.7%, Stocks & Shares are up 1%, while Cash ISA investment has plummeted by -16%.

Because of this massive growth, IFISAs have also seen a big increase in the average investment per subscription, increasing by 48.2%, while all other ISAs have seen a reduction in this respect.

The increasing popularity of IFISAs is likely because they offer higher rates of interest than traditional ISAs which appeals to investors who are looking to maximise their returns in the face of rising interest rates.

Particularly given the fact that many other traditional savings products simply haven’t seen the benefit of increasing interest rates passed on by their providers.

An IFISA also enables investors to use their tax-free ISA allowance while investing in peer-to-peer lending and crowdfunding across various different industries and ventures.

One of the most popular industries is property development, with investors being paired up with small and large developers who are looking to fund new projects.

Jason Ferrando, CEO of easyMoney comments:

“The UK’s current economic picture is complex for investors. In the face of such uncertainty, portfolio flexibility is key, as keeping all of your eggs in one basket can be risky.

As such, investors are spreading their money across a number of different avenues and IFISAs are seeing strong growth as a result.

Investors are attracted to the idea of not having to rely on central finance infrastructure, and the flexible terms attached to peer-to-peer lending.

As for the fall in Cash ISAs, this will be because the cost of living crisis is hitting people hard, and lots of everyday people – amateur investors – are cashing out or choosing not to open new accounts because they need access to their money.

When life’s expenses are so high, one can rarely afford to have money stowed away.”

ISA comparisons – change

• ISA data sourced from the UK Government