Three times as many investors transferred their Cash Isa to a Stocks and Shares Isa in October 2013 compared to October 2012, according to Hargreaves Lansdown's Vantage dealing service.
Equity income funds are the most popular with investors transferring Cash Isas to the Vantage Stocks & Shares Isa and they account for 7 of the 10 most popular investments.
HL says the appeal of holding equity income funds in an Isa is that there is no further tax to pay on any income and no tax to pay on any capital gains. Isa income also does not impact on age related allowances, Child Benefit High Income Charge or the loss of personal allowance for those with taxable incomes of £100,000 or over.
According to the Bank of England the average interest rate offered on Cash Isas is 0.62% (excluding bonuses). Cash Isa interest is paid gross but within a Stocks & Shares Isa, income is only paid gross on corporate and government bonds. On everything else, including cash, the income is paid net of basic rate tax but doesn't incur higher tax rates.
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Danny Cox, head of Financial Planning at Hargreaves Lansdown, said: "Normally these types of transfer peak around the end of the tax year – a time when more people look at their Isas as part of their tax year end planning."
"Interest rates on savings remain at all time lows and investors are increasingly looking to the markets for income, and the potential opportunity for improved returns from the stock market. There are also a larger number of fixed term Isas maturing where the reinvestment rates have fallen while inflation remain stubbornly around 3%."
The HL Vantage Service is one of the largest direct to consumer investment and pension services in the UK. Hargreaves Lansdown administers over £37 billion of client assets through the Vantage Service directly on behalf of over 520,000 investors.