Millions of UK savers may be missing out on more than £75,000 each due to recurring myths about ISAs, particularly Stocks and Shares ISAs, according to a finance expert. With Chancellor Rachel Reeves expected to announce a cut to the Cash ISA allowance in her upcoming Mansion House speech next week, concerns are growing that savers aren’t making the most of their money. A staggering four in five savers say they wouldn’t consider switching to a Stocks and Shares ISA, even if their tax-free cash allowance is reduced.
Antonia Medlicott, founder and managing director of financial education platform Investing Insiders, believes this reluctance stems from widespread misconceptions and has debunked five of the most common myths she often encounters. She said: « Most people avoid Stocks and Shares ISAs because they’re nervous about the markets and don’t feel they have the knowledge and education to approach it.
« However, despite the higher risks, if you can afford to look more long-term, this offers greater potential gains and has tended to yield higher returns than savers have been able to gain through interest on cash accounts. »
According to the Financial Conduct Authority, around seven million people in the UK have over £10,000 sitting in cash savings. If that money were instead invested in a Stocks and Shares ISA tracking something like the S&P 500, the returns could be dramatically higher.
1. Will I earn less money with a Stocks and Shares ISA than a Cash ISA?
While they carry more risk, the expert highlighted that they offer significantly greater potential gains, which over time could mean tens of thousands of pounds in additional returns.
She explained: « The average annual return over the last 10 years for investments in the S&P 500 index, done through a Stocks and Shares ISA, has been 10.6 per cent. Meanwhile, for a Cash ISA account during the same period, there has been 2.57 per cent growth, and with the typical Cash ISA account holding under £13,500, this would return £346.95.
« If a Stocks and Shares ISA had the same amount of money, it would gain £1,431 in interest, an increase of more than £1,050. Over 20 years, this can be worth £78,833 extra from interest. »
2. Don’t you need to be an investor to make money from a Stocks and Shares ISA?
No. Many platforms offer ready-made portfolios managed by professionals. As your confidence grows, you can get more hands-on but you don’t have to start that way. Diversification tools and expert-managed funds make getting started much easier than many assume.
3. Isn’t money always at high risk in a Stocks and Shares ISA?
Not necessarily. You can even keep uninvested cash inside a Stocks and Shares ISA and still earn tax-free interest. For cautious savers, Money Market Funds which focus on short-term, low-risk assets can offer a safe middle ground. Some are currently yielding close to 5%, while still sheltering your returns from tax.
4. Won’t I only be able to pay into a Stocks and Shares ISA and not any other ISAs?
Since April 2024, savers can now contribute to multiple ISAs of the same type with different providers within the same tax year (except for Lifetime ISAs). The £20,000 annual allowance can be split however you like across ISAs, so long as the total limit isn’t breached.
5. Isn’t your money locked away if you choose a Stocks and Shares ISA?
Unlike some fixed-term ISAs, Stocks and Shares ISAs allow withdrawals at any time. However, unless you’re using a flexible ISA, withdrawing funds may affect how much you can contribute later in the same tax year. Always check the terms with your provider.
