ISA investors take more, invest less

26 October 2004
For the first time since their launch, investors withdrew more cash than they invested in ISAs last month.

According to the Investment Managers Association, September witnessed a total net outflow of £23.5 million.

This follows August's record low net inflow of £25 million - the lowest investment period since ISAs were created in April 1999.

By contrast, the Building Societies Association saw net inflows of £1.2 billion last month. This figure represented a tenfold increase on the same time last year.

The chief executive of IMA, Richard Saunders, looking for answers to these figures said: "The reasons are many and complex, but are likely to include continuing uncertainty about investment prospects, higher interest rates and reduced tax benefits associated with ISAs."

He added: "Despite stronger markets in September, investor confidence remains low," and as such he believes the trend "shows that efforts to attract investors back to the market are not yet succeeding".

Compounding the problem is the fact that the government is planning to reduce the amount that can be invested in ISAs in April 2006.

The new levels of tax-free investment will be reduced from £7,000 to £5,000 for equity ISAs, and from £3,000 to £1,000 for cash ISAs.

The managing director of Fidelity Investments, Richard Wastcoat, says: "The decision by the chancellor to reduce the tax relief on ISAs has not been helpful in boosting confidence in the savings market and we would urge him to reconsider the move."
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