Since his Budget last Wednesday, there has been a lot of speculation over whether Chancellor George Osborne has killed the cash ISA.
By making the first £1,000 of savings interest free of tax for basic-rate taxpayers, he made cash ISAs redundant for most people.
You would need £66,000 in the bank earning a market-beating return of 1.5% to earn that much interest in a year.
Even 40% taxpayers, who get a reduced £500 savings limit, need £33,000 worth of savings.
For all but the most avid holders of cash, that is more than enough.
They have little need for cash ISA allowance on top.
Dearly Departed
So does this really herald the death of the cash ISA? I would argue that they were dead and buried years ago.
The death sentence was pronounced when the Bank of England slashed base rates to 0.5% six years ago.
Since then, cash ISAs have faced death by a thousand rate cuts, as banks and building societies jostled to slash their offerings to fresh lows.
The best easy access cash ISA now pays just 1.5%, and that isn’t even offered by a bank, but the government, through National Savings & Investments.
A combination of the Bank of England, the Funding for Lending Scheme (which meant the banks no longer needed to attract cash from savers to fund their lending) and bank greed struck down cash ISAs long before George Osborne stepped up to deliver the final rites.
Zombie Wealth Eaters
Savers who used their full cash ISA allowance each year for the past 15 years have actually seen the value of their money fall by £4,218 in real terms after inflation, according to wealth manager Nutmeg.
It warns that 21 million Britons are stuck with underperforming “zombie” cash Isas paying minimal rates of interest.
Cash ISAs died years ago. Now they simply resemble the living dead.
Killer Stock Markets
The real killer has been the comparative success of stock markets since the financial crisis.
While £15,000 paid into the average savings account 10 years ago is now worth £16,321, it would have more than doubled to £31,890 if invested in the FTSE All Share index instead.
And with some canny stock picking, many investors will have enjoyed a far better return than that.
Obviously, there are risks to investing in stocks and shares ISAs, as the value of your capital is vulnerable to market movements.
Cash ISAs, by comparison, only offer your money the certainty of a slow painful death.
