Encourage cash Isa savers to invest… don’t do it by force, says LEE BOYCE who believes having choice over our finances is vital

At This is Money, we respect the Individual Savings Account so much that we choose not to cap up its acronym – for us, it’s an Isa (not ISA).

It’s a stylistic choice that occasionally sees a reader email in… ‘Isa should be capped up.’

But never a publication to shy away from doing things differently and go against the grain, it has been Isa for us for decades.

Why? According to our style guide it’s because it’s an acronym you can say, but for Isa it goes beyond that.

It is such an important and powerful financial planning tool, embedded in our nation’s savings philosophy, the Isa has become part of everyday language.

You say Isa, not I-S-A, like U.S.A.

We treat it like the proper word it deserves to be and every week, we publish plenty of stories on Isas and update our rolling guides – from our DIY Isa platform round-up, to our independent best buy tables and latest product launches. 

We also regularly highlight why investing your Isa is likely to return you more than a cash version.

Lately, the tax-free wrapper has been thrust into the spotlight, with speculation rife about potential tinkering from the Chancellor.

Rachel Reeves is said to have been in a recent meeting with some city bosses, putting pressure on her to cut tax breaks for cash Isa savers.

They argue the hundreds of billions of pounds parked in cash Isas could be put to better use if invested.

The suggestion is the Government should reduce the cash Isa allowance to push savers into investing.

Currently, the allowance sits at £20,000 – and people can opt to put the full amount in a cash version, or a stocks and shares one, or split as they see fit. 

This hasn’t always been the case, and I’d argue the flexibility we’ve had in the last decade on Isas has been the cornerstone of successful financial planning. 

But while there is hundreds of billions in cash, there is hundreds of billions also in the investment version. 

The Chancellor allegedly did not dismiss the idea of making changes, according to a senior banker.

I spotted back in the Autumn Budget a commitment by the Treasury to keep the Isa limit frozen at £20,000 until 2030.

Under the previous government, the Budget documents would only commit for the upcoming financial year. It didn’t, however, go as far as saying this will continue to be split between cash and stocks and shares.

Rachel Reeves wouldn’t be the first, nor the last, Chancellor to focus her attention on Isas – but a potential cut to the allowance would put her at risk of upsetting millions of cautious British savers.

I can genuinely imagine them protesting in the street, much like the farmers over recent inheritance tax changes.

There is logic behind the madness though – firms are desperate for us to invest in British stocks, hence the ill-fated British Isa idea under the Conservatives and over the long-term, investing always wins versus savings accounts.

Last April, I said: Hands off our Isas! That was when think tank Resolution Foundation started talking about £100,000 lifetime limits.

I argued that people tend to build up an Isa pot and then become pretty obsessive about building it up further, protecting it from tax and growing it over the years. It’s the most successful tool in our savings arsenal.

The onus is on the individual – clue in the Isa acronym, surely – to split how they see fit each tax-year their £20,000 allowance, not strong-arm them into investing.

From experience, it’s the wrong road to travel.

I split my Isa 80-20 

I personally invest more than I save in the tax-free wrapper, as time is on my side. 

My Isa, soon to turn into a teenager, is growing brilliantly thanks to compounded gains on the stocks and shares side, and the returns my fund brings by investing in thousands of shares globally, for an extremely low ongoing fee.

However, my cash Isa is the anchor – the safety first, emergency pot. 

I split between the two 80-20, with investing taking the bigger slice of my monthly contribution.

For many though, cash Isas are the product they have loyally stuck with – and that’s surely their choice, including a reader who wrote in with a question about his £254,000 cash Isa pot.

My first instinct was to go: ‘Whoa, that’s a hefty chunk of change to hold in cash Isas, earning at the very maximum 5 per cent per annum.’

But logic says… it’s their money, it’s up to them. There are plenty of factors at play. Age, pension savings, aversion to risk just to name a few.

Savvy This is Money readers are very likely to be the cohort of people who invest and save.

Ask yourself this though: How many family members and friends, if you talk about investing, will say… it’s not for me, it’s too risky…

I’d argue that having all your money in one basket with a cash Isa is risky – mainly, due to inflation eroding its value. 

We’re in an era where investing in a stocks and shares Isa is easier than ever before. 

If you’re in the ‘it’s too risky for me’ category, check out our DIY investing channel – or pass it on to your cautious friends and family.

That’s the way to go. Raising awareness, letting people know ideally it is a 5-10 year minimum horizon when you invest, and cash is for emergencies.

The message to hammer home is: Cash Isa rates look good at the moment, but the stock market beats them long-term.

The message shouldn’t be: You’ve saved too well, move your money into investing or face a tax bill. It’s all in the messaging.

It is all speculation and I’m sure Rachel Reeves respects one of Britain’s best loved tax breaks enough to call an Isa an Isa… and to push any pressure to become a tinkerer aside.

The investors with £9m Isa pots 

Last year, we revealed that Britain’s most dedicated Isa investors have racked up pots worth almost £9million each.

There are 25 super Isa investors in the country who have an average of £8.9million saved in their tax-free accounts.

One of them, Lord John Lee of Trafford, became the first Isa millionaire in 2003 by investing, with 5,000 now in that exclusive club – and crucially, none of them would have got there by saving in a cash Isa. 

You can read his three-step blueprint to follow in his footsteps.