Almost 1 in 5 (17 per cent) UK adults have ‘never heard’ of a stocks and shares Isa, according to research from the Investment Association.
The survey, conducted by Opinium between February and March, found a quarter (25 per cent) of those surveyed who have heard of the investment product do not know anything about it.
The IA surveyed three groups: 1,000 investors, 1,000 cash Isa or junior Isa holders and 2,000 adults over 18.
It found there is a stark difference between those already holding investment products and the wider UK population.
With the end of the tax year fast approaching, the IA said people could be missing out on tax-free Isa savings and the long-term growth investing can bring.
Miranda Seath, director of market insights at the Investment Association, said: “Isas are an important, tax-efficient tool to help people to achieve their financial milestones, whether that’s buying a first home, preparing for retirement, or simply securing their financial future.
“For many, they are also an important first step towards getting started with investing.”
Bridging the gap
Cash Isas can be helpful for saving for immediate needs or to build a rainy-day fund.
By contrast, investing through a stocks and shares Isa can offer stronger returns over time, helping savers grow their wealth and protecting against inflation.
Among the sample of cash Isa holders, over a fifth (22 per cent) said they do not know much about investing.
They said cash Isas are easier to understand, and the same number said they do not want the value of investments to go down as well as up.
However, with two in five (40 per cent) cash Isa holders using the product to save for retirement, many are missing out on the growth potential of investments whilst exposing their savings to the detrimental impact of inflation.
Seath said: “Our research has highlighted a significant knowledge gap between those who are already investing and those who are yet to get started.
“This means that people across the UK are missing out on the benefits and growth potential investing can bring – and that needs to change.”
Over half (54 per cent) of respondents said they understood investing in a stocks and shares Isa could give a better long-term return – over five years or more – compared to a cash Isa.
The IA said this is particularly important given that many people are saving for a long-term goal such as retirement (55 per cent) or leaving an inheritance (19 per cent).
“The investment management industry has pledged to increase the number of people holding an investment product from just over 20 per cent of the UK population to 75 per cent over the next decade – matching the number who hold a cash savings account today,” Seath added.
“In turn, this could take advantage of the investor sentiment to back Britain.
“It is not only the economy that will benefit, but the millions of people across the UK that will reap the rewards investing can bring to their long-term financial security.”
Barriers to investing
Meanwhile, the research found that uptake across all Isa products was relatively low, especially stocks & shares Isas.
Less than a third (31 per cent) of UK adults hold a cash Isa, and even fewer (16 per cent) currently have a stocks & shares Isa.
The survey found that 62 per cent of men are investors compared to women, whereas the split between men and women who hold cash Isas is much more even.
Men are also twice as likely to have a stocks and shares Isa compared to women (21 per cent vs 11 per cent).
Among cash Isa savers who do not currently hold any investment products, almost two-fifths (39 per cent) said no amount of savings would make them feel comfortable investing.
This is significantly higher among older generations – over half (53 per cent) of baby boomers compared to 23 per cent of Gen Z and millennial cash Isa savers.
The IA said this means that 61 per cent could become comfortable with the idea of investing – presenting an opportunity to grow their savings.
