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ISAs - UK - November 2017

“A falling savings ratio and the launch of the Personal Savings Allowance pose a serious threat to the ISA market, with contributions falling for the fourth year running in 2016/17. However, low interest rates and the development of online platforms have driven new interest in the stocks and shares ISA market. This, along with the launch of the Lifetime ISA, has the potential to revive the market going forward.”
– Jessica Galletley, Financial Services Analyst

This report looks at the following areas:

  • Flexible rules add another unneeded layer of complication
  • Delayed uptake of Lifetime ISA due to desire to stay with main bank
  • Stocks and shares providers need to take charge on transparency

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this Report
      • Executive Summary

          • The market
            • Value of account subscriptions fell by 23%
              • Figure 1: Number of ISAs and amounts subscribed, 2010/11-2016/17
            • Lifetime ISA has the potential to revive the cash ISA market
              • Figure 2: Forecast of total adult cash ISA subscriptions, 2011/12-2021/22
            • Stocks and shares ISA market forecast to grow by 27% by 2021/22
              • Figure 3: Forecast of total adult stocks and shares ISA subscriptions, 2011/12-2021/22
            • Personal Savings Allowance undermines ISA benefits
              • Savings ratio falls to low of 1.7% in Q1 2017
                • Figure 4: Quarterly gross household savings and savings ratio, seasonally adjusted and at current prices, Q1 2013-Q1 2017
              • Companies and brands
                • Nationwide is the biggest provider of cash ISAs
                  • Figure 5: Ranking of cash ISA providers, by proportion of ISA holders, April 2017
                • Fidelity is the largest provider of stocks and shares ISAs
                  • Figure 6: Top 10 investment ISA providers, by ISA funds under management, May 2016 and May 2017
                • Lifetime ISA market dominated by stocks and shares
                  • New FinTech investment services bring investing to the masses
                    • Adspend falls by 38%
                      • Figure 7: Total above-the-line, online display and direct mail advertising expenditure on ISAs, 2012/13-2016/17
                    • The consumer
                      • Cash ISAs are second after savings accounts for popularity
                        • Figure 8: Savings product ownership, August 2017
                      • Only half of ISA holders aware of new Flexible ISA rule change
                        • Figure 9: Awareness of the Flexible ISA rule change, August 2017
                      • Withdrawal restrictions are an important disciplinary feature for younger savers
                        • Figure 10: Behaviours and attitudes towards the introduction of the new flexible rule changes, August 2017
                      • Alternative ISAs more likely to attract savings
                        • Figure 11: Attitudes towards saving in an ISA, August 2017
                      • Online services must cater to different levels of investor
                        • Figure 12: Important factors when choosing a stocks and shares ISA provider, August 2017
                      • A third are considering opening a Lifetime ISA
                        • Figure 13: Agreement with the statement ‘I am considering opening a Lifetime ISA’, August 2017
                      • Consumers split over cash vs stocks and shares Lifetime ISA
                        • Figure 14: Considerations and attitudes towards the Lifetime ISA, August 2017
                      • What we think
                      • Issues and Insights

                        • Flexible rules add another unneeded layer of complication
                          • The facts
                            • The implications
                              • Delayed uptake of Lifetime ISA due to desire to stay with main bank
                                • The facts
                                  • The implications
                                    • Stocks and shares providers need to take charge on transparency
                                      • The facts
                                        • The implications
                                        • The Market – What You Need to Know

                                          • Cash subscriptions fall whilst stocks and shares rise slightly
                                            • Personal Savings Allowance undermines ISA benefits
                                              • Growth in contributions will be driven by stocks and shares ISAs
                                                • Savings ratio falls to low of 1.7% in Q1 2017
                                                  • People more likely to look beyond their main bank for stocks and shares
                                                  • Market Size

                                                    • Value of account subscriptions fell by 23%
                                                      • Figure 15: Number of ISAs and amounts subscribed, 2010/11-2016/17
                                                    • Cash subscriptions fall whilst stocks and shares rise slightly
                                                      • Figure 16: Number of ISAs and amounts subscribed, segmented by component type, 2010/11-2016/17
                                                    • Average subscription values for stocks and shares continue to rise
                                                      • Figure 17: Average subscription per account, 2010/11-2016/17
                                                    • OEICs take greatest share of stocks and shares investments
                                                      • Figure 18: Value of funds held in adult ISAs, by type of investment, 2013/14-2016/17
                                                  • Market Forecast

                                                    • Lifetime ISA has the potential to revive the cash ISA market
                                                      • Figure 19: Forecast of total adult cash ISA subscriptions, 2011/12-2021/22
                                                      • Figure 20: Forecast of total adult cash ISA subscriptions, at current prices, 2011/12-2021/22
                                                    • Stocks and shares ISA market forecast to grow by 27% by 2021/22
                                                      • Figure 21: Forecast of total adult stocks and shares ISA subscriptions, 2011/12-2021/22
                                                      • Figure 22: Forecast of total adult stocks and shares ISA subscriptions, at current prices, 2011/12-2021/22
                                                    • Forecast methodology
                                                    • Market Drivers

                                                      • Savings ratio falls to low of 1.7% in Q1 2017
                                                        • Figure 23: Quarterly gross household savings and savings ratio, seasonally adjusted and at current prices, Q1 2013-Q1 2017
                                                      • ISA rates remain at historic lows
                                                        • Figure 24: Average monthly quoted cash ISA variable rate and fixed rate, September 2011-August 2017
                                                      • Government introduces new ISA savings products
                                                        • Help to Buy ISA
                                                          • Lifetime ISA
                                                            • Innovative Finance ISA
                                                            • Regulatory and Legislative Changes

                                                              • Personal Savings Allowance undermines ISA benefits
                                                                • Regulatory focus on clarity and transparency
                                                                  • FCA focuses on competition in the investment management market
                                                                    • Improving the treatment of cash savings customers
                                                                      • MiFID II aims to increase investor protection
                                                                        • Government introduces new flexible feature
                                                                          • Rising ISA limits unlikely to matter to the everyday saver
                                                                            • Figure 25: Annual ISA subscription limits, 2008/09-2017/18
                                                                        • Channels to Market

                                                                          • More people take out a cash ISA with their main bank…
                                                                            • …but people look elsewhere for stocks and shares
                                                                              • Figure 26: Financial product ownership and cross-sales, June 2017
                                                                          • Companies and Brands – What You Need to Know

                                                                            • Nationwide is the biggest provider of cash ISAs
                                                                              • Lifetime ISA market dominated by stocks and shares
                                                                                • New FinTech investment services bring investing to the masses
                                                                                  • Adspend falls by 38%
                                                                                  • Market Share

                                                                                    • Nationwide is the largest provider of cash ISAs
                                                                                      • High street banks dominate the market
                                                                                        • Figure 27: Ranking of cash ISA providers, by proportion of ISA holders, April 2017
                                                                                      • Fidelity is the largest provider of stocks and shares ISAs
                                                                                        • Figure 28: Top 10 investment ISA providers, by ISA funds under management, May 2016 and May 2017
                                                                                    • Competitive Strategies

                                                                                      • Lifetime ISA market dominated by stocks and shares
                                                                                        • Uptake of the Innovative Finance ISA has been muted
                                                                                          • Not all providers have adapted to the new flexible rules
                                                                                            • Figure 29: Selected cash ISA providers, October 2017
                                                                                          • Breadth of products varies by type of provider
                                                                                            • FinTech challengers avoid cash ISAs
                                                                                              • Savings providers act ahead of any future interest rate rises
                                                                                              • Launch Activity and Innovation

                                                                                                • Providers look for ways to help people maximise their allowance
                                                                                                  • Charter Savings launches Mix and Match ISA
                                                                                                    • CustomISA from Newcastle Building Society
                                                                                                      • Virgin Money champions interest alternatives
                                                                                                        • Double Champions Cash ISA
                                                                                                          • Increased points incentive for new stocks and shares ISA holders
                                                                                                            • Vanguard launches in the UK with half-price fees
                                                                                                              • New FinTech investment services bring investing to the masses
                                                                                                                • Nutmeg
                                                                                                                  • Munnypot
                                                                                                                    • Wealthify
                                                                                                                      • Moneybox
                                                                                                                      • Advertising and Marketing Activity

                                                                                                                        • Adspend falls by 38%
                                                                                                                          • Figure 30: Total above-the-line, online display and direct mail advertising expenditure on ISAs, 2012/13-2016/17
                                                                                                                        • Cash ISA providers’ adspend remains low
                                                                                                                          • Figure 31: Top 10 recorded above-the-line, online display and direct mail advertisers of cash ISAs, 2012/13-2016/17
                                                                                                                        • Fidelity is the largest advertiser of stocks and shares ISAs
                                                                                                                          • Figure 32: Top 10 recorded above-the-line, online display and direct mail advertisers of stocks and shares ISAs, 2012/13-2016/17
                                                                                                                        • Press takes largest proportion of advertising spend
                                                                                                                          • Figure 33: Total above-the-line, online display and direct mail advertising expenditure on ISAs, by media type, 2016/17
                                                                                                                        • Nielsen Ad Intel coverage
                                                                                                                        • The Consumer – What You Need to Know

                                                                                                                          • Cash ISAs are second after savings accounts for popularity
                                                                                                                            • Only half of ISA holders are aware of new Flexible ISA rule change
                                                                                                                              • Alternative ISAs are more likely to attract savings
                                                                                                                                • Online services must cater to different levels of investor
                                                                                                                                  • A third are considering opening a Lifetime ISA
                                                                                                                                  • Savings Product Ownership

                                                                                                                                    • Savings accounts are the most commonly held saving/investment product
                                                                                                                                      • One in five own a stocks and shares ISA
                                                                                                                                        • Figure 34: Savings product ownership, August 2017
                                                                                                                                      • Help to Buy/Lifetime ISA uptake strongest among 18-34-year-olds
                                                                                                                                        • Figure 35: Savings product ownership, by age, August 2017
                                                                                                                                    • Value of ISA Savings

                                                                                                                                      • A fifth have less than £1,000 in ISA savings…
                                                                                                                                        • …whilst only a third have over £10,000
                                                                                                                                          • Figure 36: Value of ISA savings, August 2017
                                                                                                                                        • Stocks and shares ISA holders more likely to have over £10,000 in ISA savings
                                                                                                                                          • Figure 37: Value of ISA savings, by ISA ownership, August 2017
                                                                                                                                      • Awareness of the Flexible Rule Change

                                                                                                                                        • Only half of ISA holders are aware of the changes
                                                                                                                                          • Figure 38: Awareness of Flexible ISA rule change, August 2017
                                                                                                                                        • Higher-value savers more aware
                                                                                                                                          • Figure 39: Awareness of Flexible ISA rule change, by value of ISA savings, August 2017
                                                                                                                                      • Attitudes towards the Flexible Rule Change

                                                                                                                                        • Three quarters say they like the flexibility...
                                                                                                                                          • …but the restrictions are an important disciplinary feature for younger savers
                                                                                                                                            • Figure 40: Behaviours and attitudes towards the introduction of the new flexible rule changes, August 2017
                                                                                                                                          • Providers need to do more to increase clarity around the new feature
                                                                                                                                            • Flexible feature has led to a change in behaviour
                                                                                                                                              • Figure 41: Behaviours and attitudes towards the introduction of the new flexible rule changes, by age, August 2017
                                                                                                                                          • Attitudes towards Saving in an ISA

                                                                                                                                            • Low rates are affecting people’s incentive to save
                                                                                                                                              • Figure 42: Attitudes towards saving in an ISA, August 2017
                                                                                                                                            • Half save in their ISA first…
                                                                                                                                              • …rising among those with newer forms of ISAs
                                                                                                                                                • Figure 43: Agreement with the statement ‘I save in my ISA before saving anywhere else’, by type of ISA held, August 2017
                                                                                                                                              • Only one in five will consider opening a stocks and shares ISA
                                                                                                                                              • Moving Money

                                                                                                                                                • A third have moved money out of an ISA
                                                                                                                                                  • Figure 44: Money movements over the last 12 months, August 2017
                                                                                                                                                • Savers with lower ISA balances more likely to have moved money
                                                                                                                                                  • Figure 45: Agreement with the statement ‘I've moved money from an ISA to my current account/other cash-based savings account in the last 12 months’, by value of ISA savings, August 2017
                                                                                                                                                • One in five have moved money to an investment product…
                                                                                                                                                  • …but ultimately cash alternatives are preferred over stocks and shares
                                                                                                                                                  • Choosing a Stocks and Shares ISA

                                                                                                                                                    • Lack of understanding means clarity is key
                                                                                                                                                      • Figure 46: Important factors when choosing a stocks and shares ISA provider, August 2017
                                                                                                                                                    • Simplicity is more important than having a range of investment options
                                                                                                                                                      • Online services must cater to different levels of investor
                                                                                                                                                      • Attitudes towards the Lifetime ISA

                                                                                                                                                        • A third are considering opening a Lifetime ISA
                                                                                                                                                          • Figure 47: Agreement with the statement ‘I am considering opening a Lifetime ISA’, August 2017
                                                                                                                                                        • 25-29-year-olds most likely to be considering opening one
                                                                                                                                                          • Figure 48: Considerations and attitudes towards the Lifetime ISA, by age, August 2017
                                                                                                                                                        • The need for access puts people off
                                                                                                                                                          • Figure 49: Considerations and attitudes towards the Lifetime ISA, August 2017
                                                                                                                                                        • Split over cash vs investment preference
                                                                                                                                                        • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                            • Abbreviations
                                                                                                                                                              • Consumer research methodology
                                                                                                                                                              • Appendix – Market Size and Forecast

                                                                                                                                                                • Best- and worst-case forecasts for cash ISA subscription value
                                                                                                                                                                  • Figure 50: Best- and worst-case forecasts for total adult cash ISA subscriptions, at current prices, 2016/17-2021/22
                                                                                                                                                                • Best- and worst-case forecasts for stocks and shares ISA subscription value
                                                                                                                                                                  • Figure 51: Best- and worst-case forecasts for total adult stocks and shares ISA subscriptions, at current prices, 2016/17-2021/22
                                                                                                                                                                • Cash ISA volume forecast
                                                                                                                                                                  • Figure 52: Market forecast for number of adult cash ISA subscriptions, 2011/12-2021/22
                                                                                                                                                                  • Figure 53: Best- and worst-case forecasts for total number of adult cash ISA subscriptions, 2016/17-2021/22
                                                                                                                                                                • Stocks and shares ISA volume forecast
                                                                                                                                                                  • Figure 54: Market forecast for number of adult stocks and shares ISA subscriptions, 2011/12-2021/22
                                                                                                                                                                  • Figure 55: Best- and worst-case forecasts for number of adult stocks and shares ISA subscriptions, 2016/17-2021/22
                                                                                                                                                                • Forecast methodology

                                                                                                                                                                Companies Covered

                                                                                                                                                                To learn more about the companies covered in this report please contact us.

                                                                                                                                                                ISAs - UK - November 2017

                                                                                                                                                                US $2,648.76 (Excl.Tax)