Investing in a recession: Are ISAs a good idea?

October 2022

Investing in a recession: Are ISAs a good idea?

Inflation. Recession. Words that strike fear into the minds of experienced and novice investors alike. Add frequently changing interest rates and rising energy prices to the mix and it’s enough to confuse anyone. At the time of writing, the Bank of England base rate stands at 1.75 per cent, and there are indications that it will rise again in a continuing effort to reduce rampant inflation. So what can you do if you want to grow your money? Is investing in an ISA in a recession a good idea or are there better alternatives? Remember, you can always talk to one of our independent financial advisers if you have specific questions at

A quick review of ISAs

ISAs – Individual Savings Accounts – are a tax-free way of saving for the future. For the 2022/23 financial year,the maximum allowance in an ISA is £20,000. This means that you can hold up to£20,000 in ISA accounts, which will yield a tax-free return at the end of the financial year. The GOV.UK website best explains the most confusing element of ISAs: “You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.” There are four ISA types:


·        Cash. A cash ISA allows you to save only cash, up to that maximum of £20,000.

·        Stocks and shares. This includes saving in company shares, unit trusts or investment funds, and government or corporate bonds.  

·        Innovative finance. This type of ISA allows you to loan money to people or businesses through peer-to-peer loans without using a bank. You could also invest through crowdfunding debentures by buying out a company’s debt.  

·        Lifetime. This ISA type only allows a maximum of£4,000 per year and this can be either as cash or stocks and shares.


You can split your £20,000 allowance – across cash and stocks and shares ISAs, for example. However, you cannot hold more than one type of ISA account in any given year.  


Cash vs stocks and shares ISAs

If you are looking to grow your money for yourself or your family – as opposed to being a more seasoned investor – cash and stocks and shares ISAs are the most commonly used. If you are considering an innovative finance or lifetime ISA, talking to your independent financial adviser should be the first step.


Inflation and interest rates

When interest rates rise – as they have been since December 2021 – so will interest rates on cash ISA accounts. However, rising inflation and increases in the cost of living could quickly erode any such return on your investment. While it may be tempting to take out a cash ISA because interest rates are rising, factor in how inflation may affect your pot of money before making your final decision. It may be that a short-term ISA investment is what you need, in which case this could the right decision for you.


Taking a longer-term view

As with any investment designed to increase your money,taking a longer-term view is more likely to iron out any fluctuations.Variations in market performance, interest rates, inflation and cost of living are more likely to even out over a period of 5–10 years. Historically, the largest market gains tend to be made after the biggest drops.


With this in mind, investing in a stocks and shares ISA,even during a recession, may be a shrewd financial move, particularly if you do not want to take any short-term risks. As ever, your decision will depend on your individual circumstances. Two key things to consider include:


·        how much you can afford to save without it impacting on your day-to-day life; and

·        when you may need to access your money.  


To have a better chance of reaping the rewards of a market bounce-back, you need to be able to invest your money for a period of years rather than months. If you think you may need access to your money sooner, then you may incur penalties on top of the risk of pulling out at an inopportune time. If you are unsure of when you may need your money, then a mix of cash and stocks and shares ISAs could be a better option for you.


Get the right advice

To get the best out of your money, invest the time to talk to an independent financial adviser first. Our Plutus Wealth investment specialists can help get you set up on the right path to making the most of your money –whether you are just starting out or have been saving for a while. Talk to us about investing in a recession by calling us on 020 7871 5200 or emailing us at to set up a time to discuss your individual circumstances.


Taking financial stock at the end of a tumultuous year

December 1, 2022

Read more

Investing in a recession: Are ISAs a good idea?

October 1, 2022

Read more

How to keep your pension goals on track

May 1, 2022

Read more

Protect your pension from rising inflation

March 1, 2022

Read more

Take advantage of your tax allowances

January 1, 2022

Read more
More Plutus insights