A broker has launched a new “workaround” Cash ISA aiming to beat John Healey’s allowance cut. Hargreaves Lansdown (HL) is offering savers cash-like returns in a Stocks and Shares ISA as an alternative to a Cash ISA.
The account has been described as a workaround by HL as it allows savers looking for cash-like security to put money in low-risk investments offering returns similar to cash.
Under new rules, the Cash ISA limit for under-65s drops from £20,000 to £12,000 from April next year. It means savers under 65 can put up to £12,000 into a Cash ISA and the rest into non-cash ISAs, such as a Stocks and Shares ISA.
The Chancellor’s predecessor, Rachel Reeves, had aimed for the new Cash ISA rule to encourage more people to invest in a Stocks and Shares ISA.
In a bid to stop savers from getting round the cash ISA cap, the Government announced a ban on holding 100% of a Stocks and Shares ISA in money market funds. But the rule can be avoided by holding even just a penny in another product.
Money market funds are low-risk investments which offer somewhere to hold rather than grow savings while aiming to generate a slightly higher return than cash.
Alex Lambert from Hargreaves Lansdown said: “Thinking about those clients who are using their £12,000 limit and then are still scared to invest and would use this as a workaround, we’ve invested quite heavily into our overall cash management range.”
HL said demand for money market funds has grown from a few thousand five years ago as interest rates have climbed to more than 5% since 2022.
The broker said over the last year it has seen demand for such funds increase by 35% , with almost £7billion invested last year.
Anna Macdonald, Investment Strategy Director at HL, said: “There was a sense inflation is here and money market funds are a low-risk place to hold cash in investment accounts. It made a lot of sense.”
Ms Macdonald, quoted by the Telegraph, added: “We have already seen strong and growing demand. Interest has grown because of the cash Isa changes coming in from April.”
HL’s money market fund includes an ongoing charge of 0.06% or 60p per £1,000 invested as well as a 0.35% platform fee and £1.95 dealing charge. It anticipates a yield of 3.95% on its cash-like fund, according to reports.
Mr Lambert said HL sees a lot of its new clients becoming investors after initially opening a cash product and that cash plays an important part in that journey.
