He adds: “I should imagine this pattern will continue, and cash Isas are likely to be more popular than stocks and shares Isas once again this Isa season, as we are still no closer to getting Brexit sorted and the deadline is pretty much at the end of the tax year.”
Mr Fearnhead explains: “A good example would be the Innovative Finance Isa, as it is based on investment in loans, rather than in stocks and shares that are at the mercy of geopolitical and economic movements.”
He adds: “Innovative finance Isas offer a genuine alternative for those who want to earn a decent return on their money without the risks and volatility associated with the stock market."
At the end of 2017, Funding Circle, a business loans platform, launched its Innovative Finance Isa.
The firm projects returns of 5.5 per cent to 6.5 per cent, which it claims is up to seven times higher than the average instant cash Isa.
“Investing in a stocks and shares Isa could help people reach this target even more quickly, but extreme price movements are common. For example, last year the FTSE 100 fell by more than 12 per cent,” Funding Circle stated.
Should you switch Isa?
Mr Fearnhead says: “When it comes to cash Isas, I believe interest will continue to fall as people realise there is little or no benefit to them, and as awareness of alternative options grows.”
Mr Witcombe acknowledges that even for those who are risk-averse to holding stocks and share Isas, cash Isas may not be be the best solution.
“The problem with leaving lots of money in cash is that it is likely to get gradually eaten away by inflation. So, investors need to decide which risk they fear most,” Mr Witcombe suggests.
Mr McDermott says: “The biggest risk for me is that people simply don't invest and they lose their Isa allowances. History shows that the best time to invest is often when investors are most fearful, but this is easier said than done."
He adds: “I'd suggest that, if investors are worried, they invest in a cash Isa now to secure their allowance and switch it at a later date – they can always drip feed the money into the market instead of in a lump sum too.”
saloni.sardana@ft.com
