9 March, 2017

ISA Season: Should I Subscribe to a Cash or to a Stocks & Shares ISA

Britons continue to favour cash over investing, despite record low interest rates continuing to starve competition for savings. Research from investment platform, Selftrade, revealed that most savers identified the accessibility cash accounts offer as being the primary driver for holding their savings there. Rates are evidently not a key attractor. In fact, Moneyfacts recently unveiled that 7 out of 10 (70%) ISAs on offer pay less than 1% interest; this is compared to one year ago when 85% of ISAs paid out over 1% interest annually.

Of those surveyed by Selftrade, 33% opt to hold their cash in an ISA and 57% surveyed have a current account. These are two of the top three most popular accounts to hold money, which is understandable for those keen to safeguard their cash and who require the greater flexibility offered by cash ISA products. Comparatively, only 1 in 10 sheltered their returns from the tax man in a Stocks and Shares ISA.

For those with a greater appetite for risk, perhaps with exposure to multiple asset classes and experience in stocks and shares investing, scrutinising the returns that can be earned on their £15,240 annual allowance may take precedence in the decision making process. If this is you, and you’re concerned about the vulnerability of cash savings to erosion by inflation, perhaps a Moneyfarm ISA could be for you. Remember: tax year deadline day is less than a month away.

NB: Your annual ISA subscription allowance for 2016-17 is £15,240. This will rise to £20,000 on April 6th.

Moneyfarm Stocks and Shares ISA

Moneyfarm is a robo-adviser that invests a customer’s capital into a portfolio of selected ETFs (Exchange Tracker Funds). It is not a savings product. If you are not new to investing in the stock market, Moneyfarm could be a welcome reprieve to costly financial advice or provider charges – Moneyfarm fees can be as low as 0.25% assets under management (AUM).

What’s more, if you invest through the Moneyfarm ISA you will not pay tax on income or capital gains. All the hard work is done for you by Moneyfarm and your returns are tax-efficient. Here’s the investment process in a Moneyfarm ISA.

Step 1: Risk questionnaire

When registering an account, you will be asked a series of questions which will determine your appetite for risk and, depending on the output, correspondingly allocate you a risk-weighted portfolio

There are 12 portfolios available.

Step 2: Portfolio view

Once you have registered your account, Moneyfarm’s algorithm will determine your risk profile, marrying it with a weighted portfolio appropriate for you.At this point, a default portfolio will be viewable. You can manipulate the amount invested, term and risk – but onlyadjusting the risk minimally and within the overall risk bracket which you are allocated. You cannot switch to a higher or lower risk profile.

Step 3: Create Moneyfarm ISA portfolio

At this point, you can click the ‘Create portfolio’ button on the right side of the screen. This will open a modal which asks if you want to open a ‘General Investment Account’ or ‘Stocks and Shares ISA’. Select the latter if you wish for a tax-efficient portfolio.

Moneyfarm account selection modal. You can then go on and deposit funds.

Best Cash ISA Rates

Cash ISAs can be effective in propping up your portfolio if you want exposure to a safe asset class. In the current environment, however, the yield on cash is at record low levels and is endangered by inflation. This does not mean it’s not a valuable asset, as mentioned earlier, it’s usually integral to an investor’s portfolio. The best cash ISA easy access account according to investment management and research analyst platform, Morningstar, is Paragon Bank’s Limited Edition Easy Access cash ISA with 1.05% interest rate. If you are interested in a fixed rate cash ISA, Aldermore offers a 3 Year Fixed Rate product returning 1.25% gross annual interest.


Regardless of cash ISA provider and product, the returns on cash are showing little promise of increasing. This is not to suggest the risk averse should abandon cash and invest in the stock market. Investing is inherently risky, and the Moneyfarm ISA is not a savings product, therefore your capital is at risk. You may receive less than you put in. However, if you are about to rebalance your ISA portfolio and want to maximise your annual subscription and are prepared to take a greater risk on your capital, a stocks and shares ISA could be the solution for earning yield and making your money work harder. The Moneyfarm Stocks and Shares ISA could be the way.