Investors who park their cash in stocks and shares ISAs with a view to doing something with it later lose out significantly.
Last year, Trustnet revealed that the cash rates offered by the largest investment platforms in the UK fall pitifully short of current cash ISA rates. More importantly, they fall significantly short of inflation, meaning anyone sat in cash will be losing money in real terms.
It is common for people to use cash as an asset in its own right, from investors unsure what to do with their money to more seasoned investors using it as a short-term stopgap before putting their money back to work again.
These are understandable reasons to leave money in cash, particularly with the volatile global political and macroeconomic picture causing considerable volatility in markets over the past 18 months.
Much of this has centred around US president Donald Trump. First came his ill-advised ‘Liberation Day’ tariffs on countries around the world, which imposed new taxes on goods imported to America and caused both equity and bond markets to retreat.
More recently, his military interventions – first in Venezuela and more recently in Iran – have caused further market uncertainty, with the VIX index (a measure of volatility) up 66.7% so far this year.
It would be easy to defend the decision to be more cautious and seek shelter during a time in which markets are so unsure as to what will happen next.
Cash is appealing as there are few defensive alternatives at present. Gold – the world’s traditional safe haven – has rocketed in recent years on the back of investor uncertainty, but no-one truly knows how far the price can go.
Government bonds have also sold off in recent weeks, with markets expecting interest rate cuts to end (or perhaps even for central banks to start hiking), as oil prices have risen sharply following the outbreak of the Middle Eastern conflict.
Even if, and when, nervous investors decide to put their cash back to work, it is easy for money to be left idle, as real world issues come to the fore and savings plans get put on the backburner.
Money can be left languishing in loss-making accounts (after inflation) for some time, with little to no prospects.
One answer to this is money-market funds, which grew in popularity in recent years as interest rates rose and these short-term, cash-like funds offered attractive yields.
They have remained reasonably popular, although have taken a back seat in more recent months as the tariff tirade calmed and markets began to rise again towards the back end of 2025.
But they could be exactly the answer for cautious investors. While the rates are less appealing than cash ISAs, they are better than leaving money on a platform.
For example, the largest such fund available on most platforms is the £10.7bn Royal London Short Term Money Market portfolio. It currently gives investors a yield of 3.9%, beating inflation but lower than a typical cash ISA.
While it is possible to just put money into a cash ISA, this option gives investors the flexibility to use cash as an asset class while also providing them the option of returning to markets whenever they wish – rather than having to change their ISA product to do so.
This issue could become even more prevalent from next year, when people will be more incentivised to open stocks and shares ISAs, with the cash ISA limit dropping to £12,000 from its current £20,000 allowance for those under the age of 65.
The total ISA allowance will remain unchanged at £20,000 but the additional £8,000 that previously could be placed in a cash option will now need to be placed in a stocks and shares ISA.
While it may not be flashy, whatever you do, do not leave your money doing nothing in cash on investment platforms. It is a guaranteed way to lose out.
Jonathan Jones is editor of Trustnet. The views expressed above should not be taken as investment advice.