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How can women close the ISA gap?

While women on average tend to enjoy better investment returns than men, a lot less invest in the stock market.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Georgia Tivadar

Published on 2 April 2020

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

On average, us women are better investors than men. According to our research, given the same starting point the average woman can grow their wealth by 0.25% more each year.

Although 0.25% might not sound much, given time it can make a big difference. Look at a 30 year time frame on a £10,000 pot and the difference is startling. If men gained an impressive 5% growth annually, a woman on average would be nearly £3,200 better off at the end of this time period.

This is largely because we tend to take less risk, which can lead to more consistent returns. We still invest in companies but we do it through funds rather than holding the shares directly, which spreads our money across a range of businesses – not just one. We’re also less likely to hold AIM shares – which are smaller companies and again carries more risk.

So why do men hold an average of £3,611 more in ISAs than women?

The answer is simple – we’re not starting from the same point.

The £30,000 tipping point

There are two parts to the ISA gap – the money going into ISAs and where this money is going.

This first part probably won’t surprise you. Men typically earn more than women, and having a lower income usually means you put less money into ISAs.

What might be news is the link between earnings and the type of ISA you have.

The more you earn, the more likely you are to have a Stocks and Shares ISA. Those earning less than £30,000 are more likely to have a Cash ISA, while those earning more prefer a Stocks and Shares ISA.

On average, a woman’s take home pay is currently about 8.9% less than a man, so less of us are in the higher-earning, Stocks and Shares ISA choosing group.

This means while the same number of us hold ISAs as men – they favour Stocks and Shares ISAs while women prefer Cash ISAs.

Cash has lower growth potential than stocks and shares over the long term. This means we’re not just putting less in our ISA’s, but we’re giving what we put in less opportunity to grow.

How can we close the ISA gap?

Waiting for the gender pay gap to close isn’t going to cut it, but the good news is there are some simple steps you can take now.

1. If you choose cash make sure you get the best possible rate.

While women prefer Cash ISA’s, we’re probably not making the most of them. Of those with a Cash ISA, 54% of men say they know what interest they’re earning – while just 32% of women do.

We also could be getting a poorer deal because we’re less likely to switch (41% of women have switched compared to 46% of men).

We’re also less likely to tie our money up in return for a better interest rate. Women are marginally more likely to have an easy access ISA (73% and 72%), and less likely to have a fixed term ISA (15% and 25%).

The solution’s simple – check the rate on your Cash ISA and consider switching if a better deal is available. With the recent base rate cut you might have to hunt harder for a good deal, but just half an hour’s research now could pay off for years to come.

2. Consider the risk of missing out

Saving tends to be for the short term, while investing is for longer term (5 years+).

Cash tends to be great for your short term needs. It’s a good idea to build up ‘rainy day’ cash savings you can easily withdraw if you need to. This shelters you from unexpected events like a broken boiler or unexpected car repairs. As a starting point, our financial planners typically suggest that we need three to six months’ worth of expenses as a rainy day fund.

But, holding cash solely on its own, instead of investing in the stock market could mean you’re limiting your opportunity for growth. That’s because compared to cash, equities usually deliver better returns over a long term.

How to choose whether to save or invest

When we asked women what put them off investing in a Stocks and Shares ISA, one common answer was because they didn’t want to take too much risk. Ironically, it’s exactly this trait that tends to mean on average female investors do better than men.

Sadly cash isn’t a risk-free option.

By not investing there’s a few risks you’re taking. Firstly, the value of your money might not rise in line with inflation. If your cash isn’t growing to match or beat the rising cost of goods and services, the real value of your money is falling.

Secondly, without the potential boost the stock market can give to your pot, you could be at risk of failing to meet your goals. Think about retirement – would you be able to build up enough of a pot to last through your later years by just holding cash? Or will you need to put your money to work to make sure you don’t have to?

We’re not suggesting for a second you ignore the risks associated with investing – far from it. But you can’t ignore another risk – the risk of missing out. If you rely on cash savings, you’re at risk of failing to grow your money fast enough to achieve your goals. Remember, when you invest, the value of your investments will rise and fall, so you could get back less than you put in.

If you’re thinking of starting to invest we have some great (jargon-free) information to help you get started.

Getting started with investing

More about our HL Stocks and Shares ISA

This article isn’t personal advice. If you’re unsure of the suitability of an investment for your circumstances, please ask for advice.

Once you’ve read more about a Stocks and Shares ISA, it’s quick and easy to get started. Once you’ve decided to open your HL Stocks and Shares ISA, you can usually do so in minutes online. All you need is your debit card and national insurance number to hand.

If you’d prefer saving monthly to investing a lump sum, you can set up a Direct Debit for your ISA from £25 a month. Direct Debits can go into funds, FTSE 350 shares, and selected investment trusts and exchange-traded funds (ETFs).

Before you apply, please make sure you're happy with our terms and conditions (including Tariff of Charges) and key features.

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