Why the new combined Isa could mean a much better return on your money

Combining cash and stocks & shares Isas ought to mean that investors will get a better return on cash waiting to be invested.

There was lots of good news for MoneyWeek readers in the Budget. We were pleased with the new flexibility on pensions, and thrilled by the rise in the Isa allowance and the abolition of the (always slightly strange) wall between cash and stocks & shares Isas.

But this isn't just good news because £15,000 is a really useful amount to be able to save in a tax free wrapper every year. It's good news because it means that those of us who have always opened share Isas but held cash inside them (while waiting for the right time/investment opportunity) might finally get a return on that cash.

Say you have an Isa with Hargreaves Lansdown today. You are doing OK and you have a total of £200,000 in it. £160,000 is invested in various funds but £40,000 is waiting to be invested. You'll be making 0.05% on it.

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Worse, under current regulations for stocks & shares Isas you'll be paying 20% tax on the income. So your annual return on the cash will be £16 (£20 in interest, minus £4 in tax). It isn't much, but it is standard stuff and until now there hasn't been much you can do about it no one pays rates any higher on cash held in SIPPs and Isas, and you haven't been able to transfer cash in and out as you like.

However, if everything now works as it looks like it is going to, this is all about to change. If you can transfer your money in and out of cash and shares you might just take that £40,000 and move it into a wrapper at, say, Nationwide where the instant access cash Isa currently pays 1.6%. That would give you a return of £644 (1.6%, no income tax).

It seems to us that even the threat of that happening is likely to get the brokers and fund supermarkets thinking they need to up their rates to a level that, even if it doesn't match that offered by the banks, is at least high enough to stop us bothering to move (moving money around is boring).

Yet another thing to look forward to.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.