Stocks and shares Isas have enjoyed a surge in popularity as investors turn to them in a bid to escape the dismal savings rates on their cash. 

Subscriptions to stocks and shares Isas jumped 29 per cent to £12.5 billion in the 2009/10 tax year, compared to the previous year.

Tony Vine-Lott, director general of the Tax Incentivised Savings Association, says the figures show the ‘continuing popularity of Isas with the British taxpayer’.

He comments: ‘In particular, stocks and shares Isas are proving their value as investors turn to them in an effort to offset the adverse effect of inflation on their cash savings.

‘Clearly people are using Isas for their longer-term needs, possibly as they try to build up nest eggs to supplement their income in retirement.’

Cash Isa subscriptions also increased in the last tax year – up 7 per cent to a record £32.5 billion. This is the third year running that cash Isa subscriptions have increased.

‘People are saving more nowadays, whether by paying off debt or building up capital in Isas,’ comments Vine-Lott.

‘And it’s easy to see why Isas are proving so popular when they can fulfil the dual role of both a savings vehicle for people who want instant access as well as a wrapper for those looking to put their money away for the long term, particularly to fund their retirement.’

Martin Bamford, managing director of financial planners Informed Choice, says he’s seen investors moving from cash Isas to stocks and shares Isas, due to continued low interest rates.  

He advises that investors look for ‘maximum flexibility’ when choosing a stocks and shares Isa, ‘preferably using a fund supermarket platform offering access to a very wide range of managers and funds’.

Bamford comments: ‘There is really no reason to invest in a stocks and shares Isa provided by a single fund manager. All this will do is create work for you in the future when you want to switch to a fund from an alternative fund manager.’

For cash Isas, he says savers should watch out for accounts offering limited-term bonus interest rates, unless they are prepared to move their money away at the end of the bonus term.  

Bamford says building up a large Isa pot is well worth the effort and believes the coalition government will remain committed to offering the tax wrappers.

‘We have several clients with over £100,000 in their Isa portfolios now, so the tax efficiency makes a real difference on this sum of money. It takes time and persistence to build an Isa this large, as well as some good investment decisions, but is well worth the effort.’

He adds: ‘Isas are a relatively low-cost savings and investment incentive for the Treasury, from a tax cost perspective. I would be incredibly surprised to see them go during the lifetime of this coalition government, although we might see the allowance merged with the annual allowance for tax-privileged pensions savings, or something similar.’

Isas are tax-free wrappers for savings and investments. The annual allowance for a stocks and shares Isa is £10,200, of which half (£5,100) can be invested in a cash Isa.