Non-cash ISA understanding low despite government push
UK savers understanding of non-cash ISA products, is lower than its cash counterpart, reflecting the lack of knowledge surrounding options despite the government push to move Brits away from cash.
According to the latest analysis from investment platform Robinhood, just under half of investors confirmed having minimal knowledge of how stocks and shares ISAs work, despite their long standing presence within the ISA framework.
In the 2023/24 tax year, approximately 4.1m Brits subscribed to a stocks and shares ISA, but nearly 10m subscribed to a cash ISA, according to figures from HMRC, as Brits rushed to take advantage of high interest rates.
Other industry figures credited a lack of understanding surrounding investing and a fear of losing money to people favouring cash savings.
Understanding continues to drop for more specialised products, with only 36 per cent understanding the rules of the Lifetime ISA, which allows savers to use the capital for retirement or to purchase a first home under £450,000.
This lack of familiarity puts those who have a Lifetime ISA at risk of losing the government bonus if they are unaware of the penalty that comes with withdrawing from these accounts for an unauthorised purpose.
Under 10 per cent claimed any familiarity with the Innovative Finance ISA, which are designed to include more long-term, less liquid investments and cash.
Just two per cent said they understood the ISA option well.
Cash comfort breaks as inflation becomes visible
Upon savers being shown how inflation erodes the real value of cash savings, interest in the product dropped sharply.
Inflation eats away at savings when the rising cost of good exceeds the interest rate paid on the account, resulting in a loss of purchasing power.
More than a third of savers who were initially interested lost interest, with 32 per cent confirming their top priority was ensuring their money kept pace or outgrew inflation.
In contrast, only 17 per cent said minimising the risk of losing money was a top priority upon choosing where to save their money, highlighting the growing momentum that Brits are becoming increasingly concerned over their money falling behind inflation than risking it through investing.
Investing seen as a reward for wealth
Despite Brits expressing fears of losing money over inflation, the idea that a substantial cash buffer is needed before placing cash in a stocks and shares ISA continues to persist.
Respondents to Robinhood’s analysis said they would need an average of £8,764 held separately in cash before opening a stocks and shares ISA.
Nearly one in five said they would need more than £20,000 before dipping their toe in the stock market.
Jordan Sinclair, President of Robinhood UK, said: “Too often, investing is seen as a reward for wealth rather than a way to build it.
“There is a clear opportunity to challenge this perception and increase awareness of the role investing can play in creating financial freedom.
“This is not about moving away from saving, but about empowering UK consumers to make clearer choices across assets so their money works harder for them.”