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What's stopping savers from opening a stocks and shares Isa?
As the Chancellor prepares the Autumn Budget, talk of a cash Isa cut is growing
The Chancellor wants to encourage more people to invest, but a new survey found nothing can persuade 40% of cash Isa holders to put money into a stocks and shares account.
The research by Royal London comes as rumours swirl that the £20,000 tax-free allowance for cash Isas will be cut in the Autumn Budget. It's hoped the move will nudge savers towards investing.
But will it work? We take a closer look at what Isas offer and the reasons why savers are reluctant to invest in stocks and shares.
Cash vs stocks and shares
Isas, or individual savings accounts, allow you to save up to £20,000 each tax year without paying tax on interest or investment gains. There are four main types for adults, plus a Junior Isa for children, and you can split your annual allowance across them.
Cash Isas remain the most popular option. HMRC figures show savers deposited a record £14bn in April 2025 alone. They work much like regular savings accounts, offering both easy-access and fixed-rate options.
Stocks and shares Isas let you invest in funds, shares and other assets. Both offer tax-free returns, but the risks and potential rewards differ.
Cash Isas have recently enjoyed record rates, with one-year fixed rates topping 5% AER in autumn 2023. However, rates were low for years before that, making them more suited to short or medium-term saving.
By contrast, stocks an shares Isas are designed for long-term growth, typically over at least five years. Returns can be higher, but the value of your investments can fall as well as rise.
- Find out more: best cash Isas rates 2025
Compare savings accounts
Find the right savings account for you using the service provided by Experian Ltd
Compare and chooseWhy savers prefer cash
Royal London's survey showed 60% of cash Isa holders could be persuaded to move funds into an investment Isa. Yet 40% said they cannot be convinced and believe cash is still king. So what's holding so many people back?
The investment company's new report found financial constraints are the main reason why people decide not to invest, with 42% stating they do not have enough money.
Risk is another major worry. The research showed 35% of people who don’t currently invest had concerns about potential financial losses and 12% worried about accessing their money if they needed it.
It's a fear echoed by Which? member Peter, a retired local government officer. The 78-year-old claims he steers clear of stocks and shares because of market uncertainty:
'A single event, like Trump's tariff announcement a few months ago, can wipe out a fair percentage of your holding at a stroke,' he says. 'It's ok being told that shares will recover ... but some older investors may not have that time.'
- Find out more: how to invest: a beginner's guide
Are the rewards worth the risk?
Stocks and shares Isas carry more risk because their value depends on market performance. For example, company shares tend to be more volatile than lower-risk assets such as bonds.
However, investing is about playing the long game. Five years is the minimum timeframe for investing, but the longer your money is sitting in a stocks and shares Isa, the more likely it will benefit from the market’s best days – when value significantly spikes.
Analysis by AJ Bell shows that someone who invested £1,000 a month in the Investment Association Global sector from 1999 to the end of 2024 would have earned £49,211 more than the average cash Isa saver.
If you’re new to investing, it’s worth considering how much risk you’re comfortable with. Spreading your money across different countries and asset types – such as funds, trusts, shares and bonds – can help reduce risk.
For those who prefer a more cautious approach, holding a mix of cash and investment Isas can strike a balance.
It's a strategy Which? member Kay says she has found success with over many years.
'We have seen ups and downs with both,' she explains. 'Interest rates on cash have been as high as 5% and as low as 0.85%. While we've witnessed some big drops, our stocks and shares Isas have done very well over time.'
'They are not for those who panic at the first sign of a drop in the stock market and you need to be prepared to hold on to them for a decent length of time.'
- Find out more: best stocks and shares Isas 2025
What could change Isa habits?
Rumours of major cash Isa reforms have been swirling since the Spring Budget announcement in March.
Chancellor Rachel Reeves has made it clear she wants to shift more savers towards investing, prompting speculation that the cash Isa allowance could be reduced – potentially to £10,000, according to the Financial Times. Earlier proposals had even suggested a £4,000 cap.
Treasury officials are also said to be weighing up the return of a previously shelved ‘British Isa’ scheme. This would give investors an additional £5,000 tax-free allowance to put into UK-listed shares.
However, experts argue that education, not reform, is the key to boosting confidence. Royal London’s report found that 25% of those who don’t invest simply don’t understand how stocks and shares work, and 16% are uncertain about where to invest.
AJ Bell is one industry voice calling for a simplification of the Isa system. It suggests combining cash and investment Isas in a single tax wrapper that would reduce complexity and make it easier for people to transition from short-term saving to long-term investing.
- Find out more: what are the Autumn Budget rumours?
'Here's how to start investing'
Josh Wilson, Which? investing expert says:
Once you’ve saved up enough money for a ‘rainy day’ fund, consider investing your spare cash in a stocks and shares Isa.
Investment platforms offer a great starting point – they’re a cheap and easy way to buy and sell multiple investments in one place. You can read our reviews of the best platforms for 2025, which includes Which? Recommended Providers.
You can pick your own investments in the form of individual shares and bonds, or, if that sounds too intimidating, you can pick an investment fund instead.
Investment funds allow you to pool your money with that of other investors to buy a ‘basket of assets’, which often includes a selection of shares and bonds from different companies.
Remember that investing includes a level of risk, and it’s possible to lose money. You can help mitigate that risk by diversifying your portfolio, which means holding lots of different types of investments.
