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Why discerning savers are increasingly attracted to investment ISAs instead of the traditional cash ISA

I've heard that investment ISAs are more popular than cash ISAs. Why is that?

Claire Geddis, partner with S Hill & Co, explains:

It is true that there has been a swing from cash ISAs to investment ISAs as many savers are switching to generate a better return.

That's because cash ISAs are offering less than attractive interest rates due to the bank base rate, which has remained at 0.5% since March of last year.

Independent financial advisors, including myself, are reporting that as many as one in three investment ISAs opened in recent times are not new money but coming from existing cash ISAs. Cofunds, one of the UK's biggest fund supermarkets, has said that it has seen an increase of cash ISAs transferring to investment ISAs from 2% of business to 20% of business in the last six months.

While savers can now quite easily transfer from cash to an investment ISA now, that wasn't always the case.

It has only been since 2008 that the rules were changed to allow this and many savers are still not aware that this option is available to them.

But while savers are moving to investment ISAs, they are still showing prudence by investing in cautious managed funds or corporate bonds to avoid the potential volatility of emerging markets. Another popular option for people is to have a cash account holding within your investment ISA.

This means that those who are not used to investing or unsure where to put their money, can transfer into a cash account initially and then slowly feed their ISA into investment funds as time goes on.

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