Nutmeg creates drip-feed Isa facility

Nutmeg creates drip-feed Isa facility

Nutmeg has launched a 100 per cent cash option for the stocks and shares Isa and general investment account with a 'drip-feed' feature.

Lisa Caplan, head of financial advice at Nutmeg, said the feature was introduced because too many people are leaving money sitting in cash, when investing could be right for them if they had a little help getting started.

According to Ms Caplan, the cash pot will help customers make the most of their 2018 to 2019 Isa allowance before the April 5 deadline and then drip-feed money into an investment pot.

She said it is not a cash Isa and isn't intended to be used for long-term savings. Investors with a stocks and shares Isa can hold cash pots alongside investment pots within their stocks and shares Isa wrapper.

Any money added to a cash pot held within a stocks and shares Isa wrapper will count towards the stocks and shares Isa contribution for the current tax year, she noted.

She said: "In times of market uncertainty, like we saw during 2018, it can be tempting to leave money in cash accounts. Sticking to cash seems safe, but it’s a mistake to view it as risk-free.

"The impact of inflation means those who opt solely for cash risk putting themselves at a disadvantage, as the real value of their money will be eroded over time. Moreover, history shows that over the long-term, stock market returns are higher than cash. 

"If you've got enough cash savings to cover emergencies and a few months' expenditure and you are considering setting money aside for a longer period of time, then investing might be right for you.

"Our new feature allows customers to start with a 100 per cent cash option, and then slowly drip-feed money into an investment that meets their risk tolerance. Giving them a chance to benefit from pound cost averaging and the potential higher returns of investing in the stock market."

Sarah Coles, personal finance analyst of Hargreaves Lansdown, said Nutmeg's latest development is something that investment services have offered for years, and can appeal to investors at times of volatility.

She said: "They can make use of their Isa allowance in the current tax year, but by drip-feeding money into the markets gradually over the following year they can average out the price they pay. If they’re otherwise too concerned about potential volatility to invest, it is a useful solution.

"Some investors will opt for regular, monthly drip-feeding: others will buy on the dips and try to identify buying opportunities. This tends to be a strategy for the most confident investors, who feel they can identify a buying opportunity at the time, because it’s the kind of thing they can only know for sure after the fact.

"However, it is still time in the markets that makes the difference for most retail investors – rather than trying to time the markets. The longer you invest for, the better your prospect of returns. If you invest in stocks and shares within an Isa as early as possible, you can take advantage of up to 12 months more potential tax efficient growth or income.