ISAs fall from favour

Financial Advisers will lose out from fewer ISA sales

Saver confidence in the stock markets was well and truly shaken in February, with sales of Individual Savings Accounts (ISAs) down by over a third.

And sales are expected to be even lower in March, with some predicting a drop of up to 60% over the previous year.

ISAs allow British consumers to have tax-free interest on savings of up to £7,000, invested in cash, shares or insurance, or in a combination of the three.

ISAs have been seen as a key indicator of sentiment among small investors in Britain since they were introduced in 1999.

Dwindling shares

Consumers put just £646.8m of their savings into net new ISAs this February, 37% lower than the £1.03bn stashed the previous year, according to figures from the Association of Unit Trusts and Investment Funds.

"With the falling stock market, investor confidence is quite shaken so people are looking perhaps to put their money in safer investments rather than more volatile investments," Amanda Davidson, an Independent Financial Adviser, told the BBC.

The first three months of the year are usually the busiest for ISAs, with savers wanting to use up their tax-free allowance before the end of the tax year.

But ISA holders have already seen their savings decline dramatically.

Savers can choose which stocks and shares to put their index into, but even the traditional "safe" stocks are proving volatile.

During February alone, London's leading share index, the FTSE fell by just over 10%.

Scared-off

And this came on top of falls of 10.2% during the whole of last year.

But savers who do not need to draw on their money in the short-term could be shielded from these falls if the stock market recovery continues.

And some, including Ms Davidson, argue that ISAs could be a better investment now the stock market has fallen than they were last year at the market's peak.

But savers have been scared off, nevertheless, and it is possible that some investors will have lost their confidence for some time to come.

The launch of stakeholder pensions on 1 April may also mean that more people channel their savings into pensions rather than ISAs.