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Cash Isa rules unfair, say savers

84% think rules penalise the risk-averse
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New research has revealed that 84% of UK savers believe the current rules on individual savings accounts (Isas) are unfair, and penalise people who are too risk-averse to invest in stocks and shares.

Right now, individuals are only able to hold half of their Isa allowance in cash savings. This means people under 50 can place a maximum of £3,600 in a cash Isa during the 2009/10 tax year, while those who will be aged 50 or over by 5 April can currently hold £5,100 of their Isa savings in cash.

Any saver wanting to make full use of his or her Isa allowance must invest at least half of it in a stocks and shares Isa. However, unlike with cash Isas, it is possible to invest the whole of your Isa allowance in stocks and shares each year.

According to Yorkshire and Clydesdale banks, 84% of UK savers think this discrepancy is unfair, and penalises savers who do not want to risk putting their money in shares which might not perform well.

Cash Isas are more popular

The banks also claim 75% of the people they surveyed would support a change to Isa rules, allowing savers to hold 100% of their Isa allowance in cash if they would like to.

When asked their views on the best way to accrue money in the long-term, 31% of respondents to Yorkshire and Clydesdale’s survey said ‘cash savings in banks or building societies’, while only 8% answered ‘stocks and shares’.

New Isa limits for 2010/11

From 6 April, everyone will be entitled to save up to £10,200 a year in Isas. A maximum cash Isa contribution of £5,100 will apply, while the full £10,200 is eligible for investment in a stocks and shares Isa.

Steve Reid, retail director for Clydesdale Bank, said: ‘A higher Isa allowance in the new tax year is of little benefit to those who are risk-averse if they can only make use of half of it. If we want people to save more, we have to support those for whom the stock market represents too much risk.’

Which? Money editor James Daley commented: ‘The current Isa rules are effectively an encouragement for people to view these accounts as vehicles for long-term saving. While the system might seem unfair, stocks and shares typically generate higher returns than cash over long periods of time – so it is understandable that the rules nudge savers in that direction.

‘Investing can seem daunting at first, so it’s important to do your research before starting and pick stocks and shares that are in line with your willingness to take risks.’

To compare cash Isa deals, check out the Which? Best Rate cash Isas review. You may also be interested in our Stocks and shares Isas explained advice guide and the Which? Beginner’s guide to investment.

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