Chancellor Rachel Reeves appears to have put the Cash ISA on a notice period and is reportedly either looking to reduce the £20k tax-free allowance or scrap the account – which has been around for 26 years – altogether. If there are any changes, they are not expected to take place until later this year, after the Treasury ruled out making an announcement in this week’s Spring Statement..
If uncertainty over the future of the Cash ISA has got you thinking about switching your cash into a Stocks and Shares ISA then you may want to consider opening a Stocks and Shares ISA account on a savings platform that pays a fixed rate of interest while you decide where to invest.
Laura Suter, director of personal finance at AJ Bell, said investing can seem scary but you don’t need to be an investing guru with a huge stash of wealth to get started.
She said: “On many platforms you can start from just £25 a month and build up from there, as you get more experience and comfortable with investing.”
Suter said while Cash ISAs were useful for saving into an emergency fund, they were a “terrible place for long-term wealth”. Our own data shows that if you had saved £1,000 a year into Cash ISAs since they were launched in 1999 and earned the average Cash ISA interest rate, you’d have a pot worth £34,400. But this would have failed to keep up with inflation, meaning your spending power would have been eroded. In real terms you’d have been worse off. If instead you’d invested in the average return of a fund investing in global markets, you’d have a pot worth £83,600 after that same period – almost £50,000 more*.
Most investment platforms will let you start with a minimum of £50 a month, so you can build up a small savings fund before you start making your first trades, many of the UK based apps include tutorials and explainers that can guide those new to investing. Once you do start investing you will have to pay a fee and an annual management charge. Anita Wright, a chartered financial planner at Bolton James said for this reason savers should shop around and find a DIY investment apps that suits them.
“The majority of DIY investment apps offer some form of interest on cash holdings, but the rates, terms and conditions can vary significantly.”
“As ever, it’s important DIY investors do their homework. Trading 212 offers interest on uninvested cash, varying by account type. Freetrade provides interest for premium (Plus) users, although standard users may not benefit. Hargreaves Lansdown pays tiered, variable interest on ISA and investment account cash.”
Five Stocks and Shares ISAs that pay interest on uninvested cash include:
121 – 4.6%
Freetrade – 5%
A J Bell Dodl – 4.58% AER
Bestinvest – 3.75%
Hargreaves Lansdown – between 2.3% and 3.15% depending on how much is being held in the account.
Note: There are other investment platforms available, your cash is at risk when you invest and past performance is not a guide to how well an investment will do in the future. Shares are a long to medium term investment so always make sure you feel comfortable with the amount of risk you take.
