Investors are ‘turning their backs’ on cash ISAs in favour of investing in fund and share dealing ISAs, according to research by Interactive Investor.

The online stockbroker has found that the number of investors who have put their money into cash ISAs has fallen from 49 per cent since the 2008/09 tax year to 34 per cent this year.

In contrast, fund ISAs and share dealing ISAs – also known as self-select ISAs – have seen a marked increase in their popularity. This current tax year has seen 43 per cent of take up from investors compared to the last tax year when there was a 28 per cent subscription.

Rebecca O’Keefe, head of investment at Interactive Investor, suggests that low interest rates have forced many investors to seek better returns on their investments.

“The best available rates on cash ISAs are around 2.5 per cent but inflation is currently running at over three per cent. For those looking for income from their investments, cash ISAs are not the place to be right now.

“More investors than ever are looking to the flexibility that a self-select ISA offers, combined with the potential for better returns,” she said.

With the ISA season now in full swing, Ms O’Keefe suggests investors are drawn to ISA because of their tax benefits.

“For higher rate tax payers in particular, using all available tax advantages makes sense and ISAs are by far the most popular tax efficient investment according to our users,” she said.

Meanwhile, further research by the online stockbroker has revealed that there has been a 40 per cent increase in the number of people buying an ISA direct from a fund supermarket.

Commenting, Ms O’Keefe said: “Investors are increasingly taking investment decisions into their own hands. More and more people now recognise the potential savings they can make by investing direct. And also the increased flexibility and transparency that holding your investments online can give you.”

© Fair Investment Company Ltd