Cash ISAs saw £7bn of outflows in the final six months of 2021, the biggest total from ISAs since they were launched in 1999.

This figure is 46% higher than the outflows seen in the final six months of 2020, when the total stood at £4.8bn.

The latest total comes as interest rates on cash ISAs more than halved last year, to hit 0.3% in December, and investment platform, AJ Bell, suggested that poor interest rates and the “dwindling appeal” of cash ISAs have played into these outflows.

AJ Bell head of personal finance, Laura Suter, commented: “ISAs generally see outflows in the second half of the year, with the first half typically seeing inflows as people put money in the accounts in March and April before the tax year-end deadline. For the past six years the final six months of the year have seen outflows from ISAs, but none as large as we saw in 2021.

“Cash ISAs hit peak popularity in 2014, when the ISA limit was dramatically increased to £15,000 partway through the tax year, and flows in the final six months of that year stood at £15.6bn.

“However, their appeal has dwindled since then. What’s more, while the first half of 2021 saw inflows to cash ISAs, they were the lowest on record, with just £2.5bn going into the accounts in those six months.”

AJ Bell’s analysis showed that the final six months of 2021 saw savers put £35.5bn in non-ISA cash accounts, indicating that there was still appetite to save, but not in ISAs. The investment platform said that “dwindling interest rates” are likely to be partly to blame, with 2021 witnessing interest rates fall to new record lows.

“The average Cash ISA was paying 0.3% interest at the end of last year, based on Bank of England data,” Suter added. “Cash ISA rates more than halved last year, as the average rate on offer in 2021 was 0.38%, compared to 0.83% in 2020 and a comparatively impressive 1.4% in 2019.”

She added: “We’ve already seen the Bank of England increase interest rates and they’ve signalled that they plan to raise them further, to hit 1.25% before the end of the year. This means that the interest rates on offer for cash savers will rise too. We’ve already seen providers increase their rates and savers will see more increases before the end of the year.

“If cash savings rates rose to 1.25% then a basic-rate taxpayer would hit their Personal Savings Allowance once they had £80,000 of cash savings, while a higher-rate payer would hit the limit at £40,000 of savings.

“Savers also need to consider how long it would take them to transfer their non-ISA savings into an ISA too, as if it would take multiple tax years they may want to start now as a precaution against either increasing interest rates or their salary pushing them into the next tax bracket.”

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