It has been suggested that merging stocks and shares Isas with their cash equivalents might encourage savers to start investing.
Although it could make investing more accessible to savers by way of less account admin, consolidating the two types of Isa will not be effective in kick-starting an investing revolution.
Current account providers, for example, offer stocks and shares Isas – and almost all adults have a current account – yet only one in five people (18 per cent) had a stocks and shares Isa last year, according to the Financial Conduct Authority's Financial Lives survey.
Mobile app accounts, such as AJ Bell Dodl and Moneybox, mean savers can open a stocks and shares Isa from their phone; but the view remains that not enough people are investing.
Plus, providers that offer competitive cash Isa rates may not necessarily offer low cost investing, and vice versa. It is reasonable to assume that the convenience of a combined cash/stocks and shares Isa will come at a cost to the consumer.
While merging stocks and shares with cash Isas might put investing under cash savers’ noses, research suggests that what would be more pertinent is education, guidance and/or advice.
Offering merged Isas will not address the misconceptions, lack of confidence or knowledge that is holding savers back.In 2022 the regulator asked non-advised adults with at least £10,000 in cash, but no investments, about their attitudes to and knowledge of investing, and why they chose not to invest.
Among other things, the FCA found:
- Almost half (46 per cent) thought they did not have enough money, or their financial affairs were too straightforward to consider investing.
- Three in 10 (31 per cent) said they did not know enough about investments or would require support if they were to invest in the future.
- A third (33 per cent) did not know that money in cash savings tends to decrease in value over time because of inflation normally outpacing interest rates.
Offering a stocks and shares Isa alongside cash in a single wrapper will therefore not address the misconceptions, lack of confidence or knowledge that is holding savers back.
Even a survey from Moneyfarm of more than 1,000 investors between the ages of 35 and 65, who had invested capital of at least £50,000, found that nine in 10 (88 per cent) said they valued the guidance and reassurance of an investment professional at some point in their investment journey.
The regulator is targeting a 20 per cent reduction in the number of consumers with a higher risk tolerance holding more than £10,000 entirely, or more than three-quarters, in cash by 2025 as part of its consumer investments strategy.
If it were as simple as combining investment and cash Isas perhaps it would have been done already.
Figures from the FCA show the proportion of adults with at least £10,000 of investible assets, and at least 75 per cent of this in cash, increased from 55 per cent in 2020, to 61 per cent in 2023.
Nevertheless, in 2022 and 2023 the proportion of those who had some appetite to take investment risk remained the same, at 44 per cent, but merging stocks and shares Isas with cash will not be enough to turn this appetite for risk into investing.
Separately, calls to raise the Isa allowance, which has remained at £20,000 since 2017, usually precede any statement or Budget.
Perhaps introducing an additional allowance that is exclusively for stocks and shares Isas, but at a value that does not disproportionately penalise cash savers, could encourage some to take the leap and invest.
Chloe Cheung is a senior features writer at FT Adviser
