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Inflation is rising: protect your money with an ISA

A lot of people were able to save up some money during the periods of lockdown. In this time of rapidly growing inflation, any of these savings that are held in cash accounts are likely to wither away slowly over time. Moneyfarm suggests opening a Stocks and Shares ISA with any spare cash you might have before the end of the tax year on April 5th, to protect your wealth long term.

ISA stands for Individual Savings Account. There are three main types of ISAs: Cash ISAs, Stocks and Shares ISAs and Innovative Finance ISAs. The majority of ISA portfolios are held in cash, meaning that the savings of millions of people are at potential risk from rising inflation rates in the UK. Here is why you should consider opening a Stocks and Shares ISA instead.

You can get started with your own stocks and shares portfolio in just a few clicks. Just answer a few quick questions about your financial situation and we’ll match you with an ISA that’s a perfect fit for your goals. Open an ISA account today. 

Rising inflation and what it means for Cash ISAs

Inflation in the UK rose to 5.5% for the last year to January, its highest rate for 30 years. According to HM Revenue & Customs, the savings of millions of pensioners held in cash ISAs are at strong risk of losing value. 

This is primarily due to the fact that, with inflation soaring, the spending power of cash savings is now strongly reduced. To give a clearer picture, the Financial Times notes that “Of the nearly 6 million people aged 65 and over who hold ISAs, more than 3 million only hold cash.” 

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Cash ISAs are a good option for those that need access to their savings regularly and are not looking to invest in search of high returns, particularly in today’s climate in which interest rates are low. However, if you are willing to take on some risk and offset the repercussions of inflation, transferring or paying into a Stocks and Shares ISA is likely to be the way forward.

Why a Stocks and Shares ISA may be for you

With a Stocks and Shares ISA, you would not only be giving your money a chance to grow faster than inflation, but you would also avoid paying tax on any profits you might make. Unlike cash, a sound investment portfolio may well be able to keep up with inflation and actually make you a profit.

There is obviously a certain degree of risk involved, and you must be conscious that you may not have instant access to your money or any profit you generate. Risk decreases over time in investing – the longer you put your money away in a Stocks and Shares ISA, the higher the chance that you’ll see a return and beat inflation.

The opening of ISA accounts has been steadily increasing for the past three years, and the outflow from Cash to Stocks and Shares ISAs has also never been stronger. If you have a long enough time horizon to invest in and the capacity to accept some risk (particularly in the short term), why not give your savings a chance of growing in a Stocks and Shares ISA? The total amount you can invest tax-free is limited to £20,000 a year, and you have until midnight April 5th. What are you waiting for?

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