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ISA ignorance! Baffled Brits could be missing out because they don't know the difference between a Cash and Investment ISA

  • Half the country can’t tell the difference between a cash and investment ISA.
  • Confusion and low cash ISA rates could be costing savers hundreds of pounds each year.
  • 38 per cent of people see putting money into an ISA each month as a ‘necessity’.

With the new ISA rules coming into effect in less than two months, new research has revealed a staggering lack of understanding around tax free saving and investments, with nearly half (48 per cent) of people across the country unsure as to the difference between a cash ISA and a stocks and shares ISA. This lack of understanding could be costing savers as much as £1,278 in total[1].

The findings were part of the ‘Disposable Income Index’, a report commissioned by UK mutual life and investments organisation, Scottish Friendly. The study examined people’s attitude towards saving and investing and revealed that around one in four Brits are currently putting aside over £100 each month. In addition, it also revealed that people saw ISAs as a vital savings vehicle, with 38 per cent saying that they see putting money into an ISA each month as a ‘necessity’.

However, with the report also highlighting widespread misunderstanding about the difference in ISAs, Scottish Friendly is concerned that when the new rules come into effect on 1st July, people will invest their full allowance into low rate cash ISAs, rather than exploring an investment ISA which could potentially provide more lucrative returns.


Neil Lovatt, director of ISA and Savings at Scottish Friendly, comments:

People will naturally sway towards cash ISA as it is the simplest to understand and there are a number of misconceptions floating around about what it means to invest in a stocks and shares ISA.

With most cash ISAs currently offering poor returns, one thing that may be holding people back is a lack of understanding about how investment ISAs work.

Inflation in April fell to a five-year low of 1.6 per cent, but currently no instant-access cash ISAs[2] offer better than inflation rates. This means that on average a sum of £1,000 invested five years ago in a tax-free deposit account would be worth just £1,007.69 today. This compares to an average return on a UK All-companies investment ISA which could have returned £2,286.42[3].

One mistaken belief that came through in the report is that people thought that investment ISAs were only for those that were putting aside significant amounts of money each month. This misconception has alienated a significant portion of savers. The reality is that people can open an investment ISA by paying as little as £10 a month and, as we all know, every little counts.

Scottish Friendly was the first investment ISA provider to outline its New ISA (NISA). The friendly society allows savers to invest from as little as £10 per month. To find out more visit,

Past performance is not a guide to future performance. The value of shares can go down as well as up and the value of the original investment is not guaranteed whereas an investment in a deposit account is guaranteed and is generally easily accessible.
Tax free means your investment grows free of income and capital gains tax (other than tax on dividends from UK shares in the case of investment ISAs).
Tax treatment depends on your individual circumstances. Tax law may change in the future.


Standardised rolling 12 month performance % growth



1.4.09 - 31.3.10 1.4.10 - 31.3.11 1.4.11 - 31.3.12 1.4.12 - 31.3.13 1.4.13 - 31.3.14
51.2% 11.6% 0.7% 17.6% 14.4%


[1] Source: Morningstar. Based on difference between £1,000 invested five years ago to 1.4.14 in average high street savings tax free account (UK Savings 2500+) compared to the average UK All Companies investment fund.

[2] Source:, Mail on Sunday, 27 April 2014.

[3] Source: Morningstar as 1, above.

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