The Chancellor wants more people to see the benefits of investing —- but ISA rules remain the same for now. Cash ISAs still suit short-term savings, while Stocks & Shares ISAs may help long-term growth.
What’s interesting is why the Chancellor is talking about ISAs right now. Back in her Spring Statement, Rachel Reeves discussed plans to reform ISAs to help savers in the UK ‘get the balance right’ between savings and investments.1
The bigger reason behind this is while saving is essential for your rainy day fund, short-term goals, and peace of mind — there’s a growing recognition from the government that more people could benefit from the potential of long-term investing.
In her speech at Mansion House on Tuesday evening, the Chancellor said:2
‘For too long we have presented investment in too negative a light, quick to warn people of the risks without giving proper weight to the benefits.’
In short, you shouldn’t feel pushed into investing, but you should feel like you’ve got the tools to get involved if it’s right for you.
Quick reminder about the ISA rules
Individual Savings Accounts (ISAs) allow UK residents to save or invest up to £20,000 each tax year without paying tax on interest, dividends, or capital gains.
Outside of an ISA, you may owe tax on savings interest above your Personal Savings Allowance, or Capital Gains Tax on investment returns above the annual exempt amount.
As it stands, your £20,000 annual allowance can be saved or invested across one or multiple ISAs (combined limit). Some ISAs are flexible (like Chip’s) meaning you can make unlimited withdrawals and redeposits, with no impact on your ISA allowance within the tax year.
How do Cash and Stocks & Shares ISAs differ?
Both Cash and Stocks & Shares ISAs offer tax-free benefits, but there are some key differences:
- With a Cash ISA, you’ll be given an interest rate — guaranteed growth on your savings — which is either fixed or variable.
- In a Stocks & Shares ISA, growth isn’t as fixed. Instead, your money is invested and the value can move up or down, but historically growth from investing has outpaced that of savings over the long-term, so it can be a great option for that cash you don’t need access to in the next few years.
What’s changing?
Right now — nothing. You can still save £20,000 across all of your ISAs, and won’t be limited to saving less in cash.
The focus of the government will instead seek to prioritise education campaigns and targeted advice, to give people the necessary tools to invest with confidence.
We know that confidence is a key part of taking that first step into investing, and empowering people through education could have a big impact. According to Barclays, 13 million adults are sitting on £430 billion of ‘possible investments’ in excess savings outside of six months of emergency funds.3
What does this mean for you?
If you already have an emergency fund of savings, and are thinking about getting started in investing, new tailored guidance could help make things easier.
At Chip, we’re firm believers that a combination of savings and investments can hold the keys to getting the most out of your money. It’s not about forcing people into one or the other, it’s about understanding the benefits of investing over the long-term.
ISAs are a great opportunity to do both, as the tax-free wrappers on these accounts let you keep more of your interest and returns.
- Cash ISAs — that are easy access and not fixed — are a great place to save your emergency fund for those short-term financial worries or targets. That burst pipe, trip to the vets, flights to Tahiti — a flexible Chip Cash ISA has you covered.
- Stocks & Shares ISAs can be a great option for those long-term goals once your cash pot is sorted — retirement, the kids house deposit, all the ‘one day’ stuff.
We know that when you’re new to investing, there’s a lot of new information to unpack, and it’s important that you know what you’re investing in before getting started. We’ve written some simple guides to help you get to grips with the basics which you can find here.
If you’re ready to take the next step and invest, we’ve got options for every investor — from ready-made, off-the-shelf funds tailored to your risk profile, to a ‘do it yourself’ range you can take your pick from.
Important to know: This article isn’t personal advice. If you’re unsure whether an investment is right for you, it’s a good idea to get advice first. Keep in mind that investments can go up and down in value, so you might get back less than you put in.