What are they thinking of?

The surprise is not that cash ISA investments have declined but that anyone is still prepared to make such investments.  The Guardian reports:

Cash Isa savings accounts have collapsed in popularity, with a £20bn fall in the amount invested in the space of 12 months.

A combination of changes to tax rules and continuing low interest rates have been blamed for the 33% decrease in the amounts being invested in cash Isas during the 2016-17 tax year. Revenue & Customs said the total fell to £39.2bn, down from £58.7bn the previous year.

Financial advisers Salisbury House Wealth said savers were “cottoning on to the fact that cash Isas offer very poor value”. Steve Webb, a former pensions minister and now director of policy at insurer Royal London, said the data showed that “the shine has really come off” the accounts.

The figures do not mean people are not putting money away for the future; they are just doing so in different ways. Since April 2016, the first £1,000 of interest that an individual receives from savings is now tax-free if they are a basic-rate taxpayer. For a higher-rate taxpayer the threshold is £500. This is called the personal savings allowance and means most people no longer pay tax on savings interest, a change the banking body UK Finance said recently had reduced the attraction of cash Isas.

You will be exceedingly lucky if you can get more than 0.5% interest on a cash ISA.  On the other hand, if you put the allowance (of up to £20,000) into a stocks and shares ISA, it is possible to secure an annual return of over 6%.  For example, Shell, BP, Scottish and Southern Electricity, and Centrica are each offering annual dividends of over 6%.  And yes, I have ISA investments in all four.

Of course, there is risk attached in that the value of share investments may go down and that the level of dividends may vary from year to year, but even so ...   And the value of cash ISA holdings will inevitably decline as long as inflation continues to exceed the interest rate.