The news comes as Chancellor Rachel Reeves is expected to reduce annual cash ISA limits.
But while the proposed plans are intended to encourage more people to utilise stocks and shares ISAs, Atom Bank found that half (49%) of savers would move their money into another cash savings account, not an equity ISA, should the lower cap be introduced.
Savers cited the main reasons for not investing as not knowing enough about investing (27%) and perceiving stocks and shares ISAs as too risky (25%).
The Atom Bank research suggests ISA reform and encouraging a culture of investing in the UK may not come as easy as the Chancellor had hoped.
The study found that the majority of savers feel ISA reforms wouldn’t change how people invest (61% agree) and would instead make ISAs harder to understand (59% agree). There is also a strong perception that such changes will unfairly impact those who prefer or need to use cash savings (70% agree) or who don’t know how to invest (71% agree).
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The research also found that recent market volatility has dented savers’ confidence in stocks and shares ISAs, with nearly half (46%) of those who don’t have one already saying it’s made them less inclined to open one. One-fifth (20%) of current holders are also actively considering withdrawing their money.
With many prepared to add any excess money into another cash savings account if the annual cash ISA allowance is cut, there is also a risk that savers will miss out on returns.
Chris Storey, chief commercial officer at Atom Bank, said: “The ambition to boost investment into the UK is right, but the method matters. Our research shows reducing the annual allowance of cash ISAs may not necessarily see savers funnelling that money into UK stocks, as they instead look to the perceived safety of cash elsewhere. Many savings rates remain lower than inflation, so for those who don’t feel investing is right for them, these reforms could leave them worse off.
“Given the impact of recent market volatility and general attitudes to investment in the UK, it’s important that the Government focuses on strategies that educate and restore confidence amongst savers. On the flip side, changes to the Lifetime ISA will likely be welcome and could be a positive step for first-time buyers. With rising house prices and ongoing affordability issues, reforms here are long overdue.”
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Cash ISAs remain a popular choice for savers and those impacted by fiscal drag and want to protect their hard-earned cash from tax. Numerous debates on what can be done to improve the culture of investing in the UK has led to speculation for cash ISAs to take a hit. However, there will be many savers who just do not want to invest their cash on the stock market, so any reforms must be considered carefully.”
