Do you know what a stocks & shares ISA is? Many don't, research shows

Do you know what a stocks and shares ISA is? If you don’t, you’re not alone. Research by the Investment Association found that almost one in five (17%) UK adults have ‘never heard’ of a stocks and shares ISA. What’s more, a quarter (25%) of those who had heard of the investment account didn’t know anything about it.

This knowledge gap could be limiting over-50s’ ability to achieve their long-term financial goals. It comes as the government continues to consider changes to ISAs to encourage investment. And the finance regulator the Financial Conduct Authority has published its new strategy, which highlights the risks of avoiding investment.

1. What is a stocks and shares ISA?
2. Are you missing out on ISA returns?
3. Investment reluctance
4. Potential ISA changes

What is a stocks and shares ISA?

Every adult in the UK can save or invest up to £20,000 in ISAs each year. You can put your entire ISA allowance into one ISA, or split it between different types of ISA. Returns from ISAs – such as interest or capital gains – are paid tax-free.

While cash ISAs can provide a helpful home for a rainy-day fund or short-term goals, a stocks and shares ISA can offer stronger returns longer term. This is because, over time, stock market-linked investments usually grow faster than cash. But despite the tax benefits, take-up of ISAs is low. According to the Investment Association, less than a third (31%) of UK adults hold a cash ISA, and even fewer (16%) currently have a stocks and shares ISA.

Are you missing out on ISA returns?

Stocks and shares ISAs allow you to invest in a wide range of assets, including stocks, bonds, and mutual funds. The lack of awareness around these tax-free investment accounts has raised concerns that older adults, who are closer to retirement, may be at risk of not reaching their financial goals due to limited options for growing their savings.

According to the Investment Association, if you had invested £10,000 into a cash ISA five years ago, it would be worth £8,713 in today’s money due to the eroding impact of inflation. But if this same amount had been invested in a typical global equity fund via a stocks and shares ISA, it would now be worth £12,249.

(Both figures are based on the average rates of return in that period and adjusted for inflation.) Sarah Coles, personal finance expert at Hargreaves Lansdown, says: “These figures show just what a difference it can make over five years. If you’re saving for 10 years or longer, those differences would be far more dramatic because of the impact of compounding.

“If you put £10,000 in a savings account for 30 years and made 3% a year, you might end up with a pot of around £24,564, whereas if you invested it over the same period and made 5% a year you could have £44,677. If it was in a stocks and shares ISA you could then take it all as tax-free income in retirement.”

Investment reluctance

The Investment Association found that two in five (40%) cash ISA holders are using them to save for retirement. But by doing so, many are missing out on the growth potential of investing whilst exposing their savings to the detrimental impact of inflation.

The study highlighted how many people are nervous when it comes to investing. Amongst cash ISA savers who don’t currently hold any investment products, almost two-fifths (39%) said no amount of savings would make them feel comfortable investing. More than half (53%) of baby boomers (people born from 1946 to 1964) felt this way. The Investment Association’s findings are echoed by research by finance app Moneybox.

Its 2025 Investing Money Mindsets research showed that just 18% of over 55s invested proactively in 2024, compared to 31% of the general population. Among those who chose not to invest, a third couldn’t afford to, 27% were worried about the risk of losing money and 24% were happy with the interest they were making on their savings.

Brian Byrnes, head of personal finance at Moneybox, says: “Given that state and private pensions alone may not be sufficient to maintain the lifestyle you want in retirement, stocks and shares ISAs offer an important avenue to achieve higher returns and bolster your overall retirement fund.

“Whatever stage of life you are at, investing wisely in stocks and shares could still significantly boost your savings. Compounded returns, even over shorter timeframes, can notably enhance your retirement income, providing greater comfort and security in later life.”

The Financial Conduct Authority (FCA) has just published its five-year strategy, which includes a focus on “enabling investment” and ensuring consumers get the information they need to make financial decisions. Its strategy points out that people who stick to easy-access savings may be missing out.

It says: “Consumers who use financial services make choices, meaning they often take risks. For instance, keeping money in seemingly risk-free, easy-access payment accounts compared to getting better interest rates by locking cash away for longer or investing in stocks and shares.

Making that decision requires people to weigh up whether to risk missing out on higher returns, be penalised if they need to access their savings earlier than expected or accept the volatility of markets.”

Potential ISA changes

The issue of encouraging more people to invest in stocks and shares is on the government’s agenda. Documents published alongside the Spring Statement last week outlined plans for a consultation into ISAs and said the government wanted to “get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

The new FCA strategy also emphasises the benefits of investment to the wider economy. It says: “People choosing to invest more could see capital flow to growing businesses or new infrastructure, as well as boosting individual finances.” It has set a target for “a higher proportion” of consumers with savings to hold “mainstream investments” in order to help them save for later life.

Press reports in the run-up to the Spring Statement suggested that the government may choose to cap how much people can save in cash in ISAs each year, in the hope that it would encourage investment into stocks and shares ISAs.

This would mean ISAs will have a similar set-up to when they were introduced in 1999 and the overall contribution allowance included a cap on how much could be saved in cash. However, critics have suggested that a lower limit for cash ISAs may not necessarily encourage people to invest.

According to research from investment platform AJ Bell, the move would only encourage one in five to invest in the stock market.