Financial Times ISA article

Aretnap

Looks like a suggestion that the government should do something radical, outrageous and unprecedented like... go back to the system as it was until 2014.

Until then a maximum of half of your ISA allowance could be used for a cash ISA; the remainder was a use it or lose it offer to invest in stocks and shares. ISTR that was intended precisely to encourage people to invest their money in productive assets rather than just cash.

And with today's large ISA allowances it's also fair to say that anybody with £20,000 per year to set aside (a) doesn't need extra encouragement to save (what else are they going to do with their money?) and (b) is at very little risk of becoming dependant on the state. How to encourage people on low incomes to save more is a reasonable question, but "make sure the cash ISA limit is £20,000 not £10,000" isn't obviously part of the answer.

ZeroSum

Grumpy_chap said:

That article linked by the OP seems very one-sided.  Representatives from "the City" think it would be better if the whole sum held within cash ISA's is invested in "the City" equities.  No counter view seems to be referenced.

And there's the big flaw. If cash isas were scrapped, 99% of the money would remain in cash savings accounts. It would just be seen as another attack & tax grab on pensioners with a massively negative political fall out 

Alexland

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs which is how I get best buy cash ISA rates without the faff of keep moving accounts around.

masonic

Aretnap said:

Looks like a suggestion that the government should do something radical, outrageous and unprecedented like... go back to the system as it was until 2014.

Until then a maximum of half of your ISA allowance could be used for a cash ISA; the remainder was a use it or lose it offer to invest in stocks and shares. ISTR that was intended precisely to encourage people to invest their money in productive assets rather than just cash.

And with today's large ISA allowances it's also fair to say that anybody with £20,000 per year to set aside (a) doesn't need extra encouragement to save (what else are they going to do with their money?) and (b) is at very little risk of becoming dependant on the state. How to encourage people on low incomes to save more is a reasonable question, but "make sure the cash ISA limit is £20,000 not £10,000" isn't obviously part of the answer.

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs which is how I get best buy cash ISA rates without the faff of keep moving accounts around.

There were a couple of other things that were different back in the early days. First, very low risk investments were not ISA eligible. I'm not sure how easily that genie could be put back in the bottle. Second, it was not possible to transfer from S&S ISA to cash ISA, only the other way. Here it would amount to closing the stable door after the horse has bolted. It would do nothing for money currently stashed in cash ISAs.

zagfles

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs.

Or gilts. Anyone with a clue will be able to pretty much replicate cash ISAs in S&S ISAs using MM funds or gilts. So a specific restriction on cash ISAs would be pointless, they're not going to force people to take risk they don't want to. 

EarthBoy

zagfles said:

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs.

Or gilts. Anyone with a clue will be able to pretty much replicate cash ISAs in S&S ISAs using MM funds or gilts. 

I would guess that most people don't have a clue about stocks and shares, funds and gilts, and all that stuff.  That's exactly why so many millions avoid them.  Cash ISAs, and saving accounts in general, might not realise as good returns, but people understand them, and know what they're getting.  

Aretnap

masonic said:

Aretnap said:

Looks like a suggestion that the government should do something radical, outrageous and unprecedented like... go back to the system as it was until 2014.

Until then a maximum of half of your ISA allowance could be used for a cash ISA; the remainder was a use it or lose it offer to invest in stocks and shares. ISTR that was intended precisely to encourage people to invest their money in productive assets rather than just cash.

And with today's large ISA allowances it's also fair to say that anybody with £20,000 per year to set aside (a) doesn't need extra encouragement to save (what else are they going to do with their money?) and (b) is at very little risk of becoming dependant on the state. How to encourage people on low incomes to save more is a reasonable question, but "make sure the cash ISA limit is £20,000 not £10,000" isn't obviously part of the answer.

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs which is how I get best buy cash ISA rates without the faff of keep moving accounts around.

There were a couple of other things that were different back in the early days. First, very low risk investments were not ISA eligible. I'm not sure how easily that genie could be put back in the bottle. Second, it was not possible to transfer from S&S ISA to cash ISA, only the other way. Here it would amount to closing the stable door after the horse has bolted. It would do nothing for money currently stashed in cash ISAs.

Obviously it wouldn't do anything about the money already held in cash ISAs, though if the government wanted to encourage more investment and less cash saving it does feel like an easy way to at least start a pivot in that direction. 

You make a good point about very low risk investments. I imagine again it would be easier to restrict new purchases of them within S&S ISAs going forwards than to try to unwind existing investments.

I'm also not sure what proportion of the people who shove £20K into a cash ISA every year would have the nous to use money market funds or one year gilts to essentially replicate a cash ISA within a S&S ISA, but I suspect it's fairly low - look at all the comments on the other thread along the lines of "there's no way I'd ever risk my money on stocks and shares". So it might not actually be a problem that needed solving.

masonic

Aretnap said:

masonic said:

Aretnap said:

Looks like a suggestion that the government should do something radical, outrageous and unprecedented like... go back to the system as it was until 2014.

Until then a maximum of half of your ISA allowance could be used for a cash ISA; the remainder was a use it or lose it offer to invest in stocks and shares. ISTR that was intended precisely to encourage people to invest their money in productive assets rather than just cash.

And with today's large ISA allowances it's also fair to say that anybody with £20,000 per year to set aside (a) doesn't need extra encouragement to save (what else are they going to do with their money?) and (b) is at very little risk of becoming dependant on the state. How to encourage people on low incomes to save more is a reasonable question, but "make sure the cash ISA limit is £20,000 not £10,000" isn't obviously part of the answer.

Alexland said:

If cash ISA contributions were capped below demand then providers would just start marketing money market funds in S&S ISAs which is how I get best buy cash ISA rates without the faff of keep moving accounts around.

There were a couple of other things that were different back in the early days. First, very low risk investments were not ISA eligible. I'm not sure how easily that genie could be put back in the bottle. Second, it was not possible to transfer from S&S ISA to cash ISA, only the other way. Here it would amount to closing the stable door after the horse has bolted. It would do nothing for money currently stashed in cash ISAs.

Obviously it wouldn't do anything about the money already held in cash ISAs, though if the government wanted to encourage more investment and less cash saving it does feel like an easy way to at least start a pivot in that direction. 

You make a good point about very low risk investments. I imagine again it would be easier to restrict new purchases of them within S&S ISAs going forwards than to try to unwind existing investments.

I'm also not sure what proportion of the people who shove £20K into a cash ISA every year would have the nous to use money market funds or one year gilts to essentially replicate a cash ISA within a S&S ISA, but I suspect it's fairly low - look at all the comments on the other thread along the lines of "there's no way I'd ever risk my money on stocks and shares". So it might not actually be a problem that needed solving.

There are already products, like this one https://www.trading212.com/interest-on-cash poised to pick up the slack. Would just take an MSE article and a bit of a push in the weekly email and I suspect many would reconsider when the alternative is paying tax on the interest outside of an ISA.

But in all seriousness, this is a political non-starter for a number of reasons, not least all of the pain would be up-front, and any benefits would not be felt until several election terms down the line. If there are any benefits when most who turn to investing would be well advised to take a global approach.

AstonSmith

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

I'd love to know where these investors go, then. When I last looked there were charges for buying shares, selling, holding the portfolio... whereas a cash ISA has none of these, and nor does the term matter. An ISA for one year always gains you money. Shares for one year might not.

jimjames

AstonSmith said:

Every time I've looked at stocks/shares I've been put off by the huge fees and the risk involved. No-one wants to get back less than they put in. 

When I last looked there were charges for buying shares, selling, holding the portfolio

Obviously looking in the wrong place if you've seen huge fees. Plenty of low cost options, have a look at T212 and Invest Engine. No fees.

AstonSmith said:

eskbanker said:

That's a very simplistic way of looking at it - most investors will do so for the long term and won't get back less than they put in, or pay huge fees for that matter.  If you have a pension, what do you think is happening with that money?

 An ISA for one year always gains you money. Shares for one year might not.

You mean a cash ISA for one year. Investing for one year would be a stupid idea which is why it's always said to be a long term investment of at least 5 years, ideally longer.

I think the suggestion would make sense if the limit was cut to say £10k for cash and kept as £20k for S&S ISAs. That would closely replicate the initial setup of £k/£7k