Rajan Lakhani (Plum) on the Cash ISA Reforms: Why Cutting the Allowance Won’t Boost UK Investing

This transcript is auto-generated and lightly edited for readability, it may contain errors.

[0:00] Sammie: Rajan, welcome.

[0:01] Rajan: Hello, how are you doing?

[0:02] Sammie: I’m good. I’m good. I am excited today. I have been a plum user for I I think it’s now coming up to its fifth year.

[0:10] Rajan: Yeah.

[0:11] Sammie: So it might yeah, it’s a while.

[0:13] Rajan: Yeah.

[0:14] Sammie: And I love it.

[0:15] Rajan: Fantastic. That’s great to hear.

[0:16] Sammie: I’m sure you like it. I love hearing that.

[0:18] Rajan: Yeah, it’s great when you hear from customers how much they enjoy using it. Like we speak to a lot of case studies and also speak to a lot of customers directly, and the impact that the app has, you just can’t imagine in some cases. A lot of people just wouldn’t have been able to save or start investing without the app. And it’s really great to hear that the impact that it has on people and their finances.

[0:38] Sammie: Yeah, well, what I’d love to know from you, obviously, you have an enormous amount of data at your fingertips. And so from your research and what you see at Plum, why do you think people struggle to save so much and build good savings habits?

[0:51] Rajan: Yeah, I think there are a number of different challenges when it comes to savings. I’d put it into kind of three different categories: um, economic, social, and psychological factors. So we start with psychological factors. I think one of the big challenges is people struggle to imagine their future self and they’re very much in the present. And that makes it difficult to think about okay, I need to save for X, Y, Z reason. So that motivation is really important. And we find that when people have a goal, that makes it a lot easier to save whether it’s a new car or being safe for a new home or another uh important um appliance purchase. So when you’ve got a goal, that gives you that extra motivation to think about the future. But a lot of people are based in the present um as well, and I think that’s a that’s a real challenge psychologically as well. Another thing is confidence. So, how do I go about saving? How do I do it? And when it comes to saving, you think, okay, it’s got to be manual. I’ve got to then remember to put that money aside into an account. And the secret power behind Plum is its automation. So Plum is an app that helps you to budget, helps you to save, and helps you to invest. Not only does it bring all the different elements of personal finance together, but I think the big differentiation is the fact that it is automated. So you’re not having to think constantly about, okay, I need to put this money aside. So you simply connect your bank account to the Plum app and then analyze your incomings and outgoings. And once it’s done that, it will work out through its algorithms how much it thinks that you can afford to save. And that’s important because you’re not having to think about it. And then it sets up those good practices for you. Now you are always in control. So if you’re thinking, actually, I’m not able to save that much, it is putting too much aside, then you can control that and you can change that. So I think there’s that psychological element of I’m not sure where to start. And what Plum does is to help um address that as well. So I think psychologically, it’s that lack of confidence and also that bias towards the present as well. And then economically, it is really, really difficult at the moment. You know, we’ve seen inflation, particularly in the UK, being high, and it has remained high. When you think the Bank of England target is 2%, and inflation is currently 3.8%, so it’s double that. So those cost of living challenges have remained, and then we’ve seen rises recently in people’s utility bills as well. Energy bills have gone up. There’s regulated prices that are linked to inflation, for example, your broadband bills or your mobile phone bills, they’ve all gone up as well. Yeah. So it’s a really challenging time economically for people. So it’s harder for them to put that money aside against that. And as inflation has gone up, that means interest rates haven’t been able to come down. So if you’ve got credit, you’re having to pay more because those rates are higher as well. So there’s an economic challenge, and then there’s the final thing around social challenge. And you know, people talk a lot about social media, but you see people spending and having extravagant lifestyles, and there’s that kind of attitude around trying to keep up with the Joneses. And some of that I think it is a real challenge when it when it comes to um saving as well. So those I think are the primary challenges, and I think it’s really important to remember that there are tools out there, and I think if you look at the UK specifically, there’s so much innovation going on with financial services companies, so many fintechs that have developed to help people manage their finances. Plum is one of those, and I think through automation, it’s helped people to save. One of the comments we get quite a lot um in our reviews is I just didn’t know I could save that much. I thought I couldn’t do it, but all of a sudden I don’t even realise I’m the money going into my savings. So people are still able to maintain that standard living. It’s just getting over that hurdles, thinking I can’t do it. Actually, I can do it, and this is helping me to do that.

[4:24] Sammie: Yeah, because a lot of this is good habits, right? Yeah, a lot of this is like, you know, if you can do this probably for three months, yeah, then that habit might literally be locked in. Let’s say a habit takes 90 days to form. Yeah. And so that’s three pay cycles. And so I love that because it’s like, well, all I’ve got to do is get this right for three months, and then actually I’ll probably away for the rest of my life. Yeah. And you can lock that in. So how do we get out of that? Okay, I can’t do this, or I need to buy the bag, and so I’m not gonna save this month. And how do we start moving into a little bit more of a savers mindset?

[4:59] Rajan: Yeah, I think a lot of people would say education. So people need to be aware of uh what options are available to them and how they go about it. But for me, I think education only takes you some way. It’s actually the practice of doing it, and exactly to your point, around habits and building habits, I think that’s absolutely key. And it’s actually giving it a go and seeing, okay, I can afford to put this money aside, and then over time that money will build. And to your point, around uh three months, exactly that. And what another thing that I’ve heard um recently, which is a trend, is around loud budgeting. So a lot of people go in public with saying, right, I’m gonna be committed to not spending this amount and putting this amount saving aside, and actually publicly committing to something actually has that psychological impact of okay, I need to do this because if I don’t, it would suggest that I’m not being able to deliver and other people be aware, and there’s a sense of embarrassment. And uh, so that’s a new trend that we’re seeing. And I think vocally committing to something, but just giving it a go, just putting it into practice, and I think a lot of people will be surprised by how much they can save. I know it it is difficult economically, but even if you just start, that’s important because that money builds over time. You know, that it’s the magic of compounding. You earn interest on interest, and then once you can see, okay, I put this money aside, I’m earning this interest, and I’m earning interest on interest, you can see how quickly uh that can uh that can develop. And and we’ve got a number of um at Plum, a number of automated rules and and and other apps have that to help you make that a lot easier for you.

[6:33] Sammie: Yeah, no, I completely agree with you. And so I always say to people, especially when they’re they’re starting out, like if you need to save but you find it really difficult, then if you think you can save 100, we’ll say start with 10 and do that and lock in the habit of 10 and then bump to 20 and then 30 and then 40. And then very quickly you’ll be like, once you’re over that hurdle, you’re like, okay, I can easily do 100 now because I can do it in this and I’ve figured out my life. And actually, it’s just those little switch, it’s like a switch. You you press the switch and it has a vast impact on the way that you look and you manage your money in all spheres, but it started with something so small and so and if it’s a pound per pound in there, completely agree. Um, and that’s going to make a massive difference. And so when you’re setting up your accounts as well, you you mentioned there like a monumentous moment and that you know, getting yourself into it. Like uh back in the day when I um wanted to pay off my credit cards, and I was unfortunately in quite a uh terrible amount of debt, 24,000 pounds in my mid-20s. But I um went up to the top of the hill and I filmed myself. I got someone, a friend of mine to film myself at the time cutting up the cards, and it was like a like a moment where I said, No, that’s the old me’s out and new me’s in. And so having those things can be really, really helpful.

[7:52] Rajan: Absolutely. I think having those examples and role models is really important, and I mentioned social media earlier, and and it can be a real force for positive positive examples like the one you just gave. Yes, there is this element of okay, this person, this influence is living this lifestyle, and I want to uh replicate that, and therefore you’re spending more. But equally, you’ll find people who have made really good financial decisions and transformed their finances around. And people find that um inspirational. And I think it’s just really important about giving people the tools that make it as easy as possible for them so they don’t go into it with like fear or feeling like, look, I need to have this education or I need to have this confidence. Just give it a go, use these tools that provide make it as easy for you as possible and see where you go from there.

[8:37] Sammie: Yeah. Um, how do you feel about saving for the long term and and short term? Because there becomes a limit. We’ve mentioned inflation today, and that’s at 3.8%. Plum and other accounts similar to it, offering between you know four and five percent, some are lower than that now, depending on where you’re you’re looking. And so you’re not actually beating inflation with that saving. So does there come a limit to where you should save? And how do you just you know structure that in your own thoughts?

[9:05] Rajan: Yeah, absolutely. So you can I think look at it from the short term and you look at it from the long term. So there’ll be things that you will need in the short term, and I think before you look to do anything, I think it’s really important firstly to try and reduce your debt, and then once you’ve got that into that position, is to develop your financial resilience, and with that financial resilience comes making sure that you’ve got that emergency fund in place, and that emergency fund can be typically between three months of um to cover three months of outgoings to six months of outgoings, and once you build that, then that opens up so many more different uh opportunities for you. So I know there are some challenges around the rate of inflation versus the savings rate, but actually having money that is absolutely safe and protected for that rainy day as a value, and it’s important to have that set aside. And as your expenses do grow, as your outgoings grow or your salary changes, then you’ll need to top that up to make sure that it still reflects three months because three months of an emergency fund a few years ago won’t be three months of an emergency fund now. It could maybe just be one month. A week, yeah.

[10:09] Sammie: Exactly.

[10:10] Rajan: Well, yeah, given the way you know bills and inflation are gone, absolutely. So, you know, it’s really important just to make sure you’re you’re topping that up. And there may be short-term reasons why you have savings. For example, you have invested for some time and you’ve achieved your goal, and now it’s the point of purchase for whatever you want to, whatever you want to do. So it does have a role to play with savings. So if you’ve got that emergency or you’re at a point in your life where you don’t want to take risk, or you’ve come close to achieving that goal and you just don’t want to take that risk now because you’ve got the money to make that purchase. And then there is a long-term element, and it’s absolutely important the point you make there. So let’s look at savings right over the last five years. If I put my money aside into savings and being really, really clever about okay, I’m gonna get the best rate here, best rate there. Being quite optimistic around it, you’re looking at from £1,000, you overall will have £1,200 or something like that. Maybe £1,150, I’m being generous, but it’s not a huge increase, but an increase nonetheless. Now, at the same time, let’s say you pick one stock, which I personally wouldn’t recommend, but let’s say you had and Gonwin Nvidia, which has been one of the best performers, you’re up to £14,000. So you can see the big difference there over the last five years. But let’s say you just pick uh the S&P 500, right? The the stock market, the US stock market that has the most investment going into it, then you’re looking at almost double over the last five years, something like £1,920. So you can see the difference that investing can make over the long term. And you know, the FCA describes the long term as at least um five years. So it’s really important. It depends on your circumstances, your appetite for risk, and what you need in the here and now when you’re making those decisions.

[11:46] Sammie: I love that you said that. I love that you said that because it for me it’s really important. We’ve got these costs which happen in life, you know, emergency fund. Everyone that we’ve ever spoken to or helped along the way, the moment they get their emergency fund, I always get an email or a message. And every single one is like, I feel amazing. It’s like someone’s literally taken a foot off my shoulders and I’m like free of there’s a weight off me because I have choice, I can move and I can basically bat off anything. Absolutely. And if you’re struggling with an emergency fund, start with £100, go to 500, break that goal down, don’t look up at three months’ figures and think, oh, it’s going to take me two years to get there. Guess what? It’s going to. But if you gamify it on the way up, then you’ll enjoy it a lot more and the process and you’ll get there and you’ll give yourself those pats on the back, which if you you struggle with money is really, really important. And personally, I that that’s that’s what got me into it. It was I needed those quick wins.

[12:40] Rajan: Absolutely. And gamifying is really, really important. And I think you know, making, as you say, something that can be fun is really important. So at Plum, there’s a number of different saving rules that it offers. So, for example, there’s to your point around starting with low amounts, there’s a 1P challenge where you save an extra 1p a day and that builds up. And actually, it might astonish you, that builds up to around £670 a year, which is a huge amount. Or if you do the £50p challenge, so you add £50p extra each day. So on the first day you save £50p, next day you save a pound, following that £1.50. That can build up over two months into you know well over £1,000. So you you can see how quickly these things um uh can build up, and it’s really making it as easy as possible. So some of the popular rules are payday rules. So when you get paid, you put an automatic amount of money aside. Another rule um is just based on our algorithms, and it says, right, based on your earnings, you can put this amount of money aside. Rainy day funds, when it rains, it puts an automatic amount of money aside. And now we’ve done the sunny day rule. So when when when when the sun’s shining, you uh you know you have a certain amount that you can uh put aside. We’ve also got the naughty rule as well. So when you are spending on something I love that yeah, you can select the retailers, can’t you?

[13:54] Sammie: Absolutely, yeah.

[13:57] Rajan: Then it will put automatically put some uh money aside as well. So it’s really important that you make it fun and you make it engaging and these rules um help you to do that.

[14:07] Sammie: And that’s why I love the app, because I I think it’s just super good fun as well, and like it’s really difficult to get fun into finance, but having things like the naughty rule and you know, you sort of tick yourself off for spending at ASOS or whatever that might well be, and it’s just kind of cool, like and it’s how this should be. Um because it’s like I liken it to that old, like, you know, you come back through the house um when you were younger and you’d have a pocket full of change because you spent the £10 your mum gave you, but you kept £2.70 and you popped it in your little jar and it would build up over time, and then you would go out and you’d smash it, or you’d take it to the the the bank or whatever and put it in after a period of time. And it’s exactly that same like joyous moment that when you did that, when you went and tipped it out in the test. You remember test in Tesco? They used to have those like things you tip your jars in and it would count it for you and stuff like that. So it’s those moments which you’re bringing into the digital sphere.

[15:03] Rajan: Yeah, absolutely. And it’s really important to celebrate those moments as well, um, and and share it with friends and family because that can be inspiring to them as well. And it’s really, really important to share this. And yeah, you know, uh as I was saying, like when you hear these stories and the impact that it makes, and the fact that people have been able to save so they can go on that holiday that they wanted to go on, or you know, they’ve had um some form of illness and this has helped to pay their treatment, it just shows you what what a difference it can make. And it’s just important to really make saving engaging and these gamified tools or rules um make it as easy as possible.

[15:38] Sammie: Yeah, no, absolutely. And so for me, there’s a kind of and you may disagree with this, and I’d be very interested to hear your take, but for me, there comes a point when it when it’s managing with your money, it’s like you’ve got your emergency fund sorted, and then the next phase for me is like your sinking fund. So like these are the things which are happening every year without fail, and they’ll be different for every person on the planet. But we all know we’ve got family members’ birthdays, yeah, Christmas, and most likely some form of insurance payment. Like we’ve all know that they’re they exist, but we don’t normally always cover ourselves and make plans for them. And so, like, what’s great with Plum, but equally as well, you know, there’s Monzo out there, there’s the there’s other apps out there which do help you do this, you can move money into pots or different areas and you can earn interest on those as well. So, like you can and you can say it’s £10 going into this pot, £20 in that one, £50 into that one based on the value and what you extract from them. And you can name them and do things with them. And that for me is your sinking funds because you know it’s coming around every single year. And then once you’ve got that set up and that’s automated, yeah, kind of that’s it for me at that point. You’ve done your savings. Exactly.

[16:48] Rajan: Yeah, that’s that’s absolutely right. And there’s a bit of a trend, you know, of assigning things into envelopes. Um, and and this is a digital way of doing that, you know. But you can assign that goal and say, right, you know, like you said, I need that um some money aside for Christmas. You set up the rule, and then it will put that money into those um goals as well. And as you say, it’s really important to make sure that that money is working hard. Um, because you worked hard yourself for that money, so it should work hard for you as well. So making sure that it is earning uh the high levels um of the highest levels of interest that you can get.

[17:20] Sammie: Yeah. And what did you call yours? Pockets, right?

[17:22] Rajan: Yes, that’s right.

[17:23] Sammie: Yeah, yeah. And Starling has them as well, Monzo has them. I just think it’s brilliant, you know. It is that old stash a bit of money into an envelope aspect. And a lot of people going back to that now. Have you seen them? Like they’re doing the cash into the envelope things because they find it difficult to use technology. And so, whatever way works for you, and that’s what’s really key with this.

[17:42] Rajan: Absolutely. Yeah, there’s no kind of one size fits all. Everyone will have their own approach. I think it’s just really important to find the tools that work for you and and it’s just really trying to make it accessible as possible. And as you said, just giving it a go.

[18:40] Sammie: Within obviously that point, you get to that point, you set that up and automated that. How important do you feel like it’s put you should definitely be considering investing some other parts of your money at that point as well?

[18:52] Rajan: Yeah, it’s a it’s a really interesting thing when it comes to investing. And I think there is a kind of different attitude in the UK culturally towards investing compared to saving, right? So you look at the US, um, it tends to be more entrepreneurial and more open towards investing. And actually, um, I think it’s a 405k, isn’t it, where people actually monitor it on a regular basis, see kind of how much it is working, and people very much measure their wealth in terms of how much their investment’s performing, as well as you know, the the value of their home as well. So it’s very different in the UK, and investing does have a crucial role to play. Like a plum, it’s all about building money, grow building money for life, growing your money for life. And historically, investing has been the most reliable route to grow your money and inflation beating returns. So it has a really important role to play. And I always find it quite interesting when I think about pensions because if you’re employed, you’ll likely have a pension. And where’s that money going into your pension? It’s going to investment. So this is a significant percentage of your income, so it could be between 5, 10, 15%, and then your employer contributes as well, and that is going into the markets, and you’re happy to do that, and and your pension fund will be one of the biggest assets that you will build up in your career. And yeah, we’re comfortable with that. But then when it comes to actually ourselves investing money elsewhere, we we seem to have a challenge. And I think it’s I think there’s a real opportunity there to kind of remind people that look, you know, you you’re already investing in the markets and you’re investing sizable amounts. And actually, outside of that, you could be making your money work harder if you are able to invest once you’ve got that um emergency fund, once you’ve paid off any debts, and you’re looking at a long-term horizon for your money, then you can build on that even more. And I think that’s important. And I find that kind of different kind of mindset quite interesting when it comes to your pension and when it comes to other money. And I think just getting that understanding more out there, I think, would be really important.

[20:52] Sammie: I think there’s two reasons for that, and I’ve thought about this problem a lot. Um, as you can imagine, as me or my in my in my days off thinking about these types of problems. But um one of them being the money’s locked up, yeah, so you’re less bothered. Simple. And the other being uh the decision about where that money uh is invested is already predetermined by your employer based on the type of funds that that that that money is going into. And so you haven’t got much decisions to make, even though you can obviously go and take control of those funds and move them into other areas and consolidate your old pensions and have a sip and do all of these things and make your decisions yourself. Most people don’t. And so they’re okay with that. It was just like, oh, you know, I’ll sort of check in later. Um and so when it comes to their stocks and shares ISA, suddenly they’re you know afforded a wealth of options about where to invest. As you well know, there’s even for the S&P 500 alone, there’s thousands of different options to pick from, and that can be extremely, extremely overwhelming. And so they bury their head in the sands. And so we have an education problem there and uh and an education around risk problem because you’re okay with tucking the money up in the pension, but you’re not when it comes to your own net income. Yeah. And I find that fascinating.

[22:13] Rajan: Yeah, I find it fascinating as well, and I think you know, I completely agree with what you said. I think you’re spot on, and I think there is an element of education uh to that as well. And it’s a really important thing you say around choice architecture, so the number of of things that you can choose from. And I think that’s one of the challenges when you can you, you know, someone’s told you, okay, the markets are performing really well, and I’ve made this amount of return, and you get really excited about that, go, okay, I’m gonna look into it myself. And then you go onto a lot of the platforms and it’s like, where do I start? There’s like thousands, tens of thousands sometimes options for me to have. And I think making it as simple as possible. Like investing isn’t, you know, meant to be simple because there’s that risk involved. You know, your money could go up, could go down. But actually making it in a way that’s accessible is really important. And that comes down to how those investment choices are presented. So at Plum we have around 26 funds, not the thousands of funds. And that’s deliberate because we don’t want people getting overawed by the number of funds that they can choose from. And I think it’s that balance between satisficing and kind of perfectionism, right? You can take the time to look into individual stocks or uh more complex funds, but not all of us are gonna have the time, or we’re not gonna have the knowledge to do that. But we want the growth, but we want the growth, but you can still get that through the you know these funds that cover uh particular stock indices, and and that’s really really important. And you know, like I said, if you’d invest in the SP 100 over the last five years, you almost double your money, and and so you know it doesn’t require you going into lots of investigation around a particular fund or a particular stock, it’s around okay, am I am I happy to earn a potentially higher return and actually finding what kind of risk appetite you have and and what works for you? Um and and actually a lot of financial um companies don’t offer uh you know a large amount of funds for that very reason. They call these starter funds where they’ve got three funds that you have, you see how much risk you want to take, and then you elect. Exactly. Yeah, and at least that’s a start. And then if you see how things are performing and it’s working for you, then okay, I might then look to explore some stocks, or I might need to want to explore different types of funds. And I think it’s just that start um that’s important, similar to the same principle around savings.

[24:38] Sammie: Uh I I’m so glad you said that because this is one of the big things that we’re trying to solve for people. It’s like, well, actually just start with something very simple, like a basic global index fund or an S&P 500 track or a FTSE 100 track, whatever. Like get started with at least that. And then once you’ve done that, while you’re doing that, because you can automate that as well, which is another big thing, you know, automate everything. If you literally just go and live your life, focus on increasing your income so you can invest and save more. Like and it makes much so much sense. But then if you do want to start doing individual stocks, you can learn about that whilst that’s ticking away. And I think a lot of people they come into investing and they see the Wolf of Wall Street trading screens, they see the individual stock pickers, they jump on to the FT or whatever that might be, or any other equivalent, and they see like stock market’s gonna crash or everything’s looking bad or all-time highs, and it just uh it just overwhelms them. And so the simplicity part is very key at the start. And that’s why I’m a big advocate of brands, uh, fintechs, um, people like yourselves, others in the space, which simplify it, especially for those beginners, but then do give them the ability to move up the chain if they want to.

[25:48] Rajan: Yeah, absolutely. And I think it’s really important to remember time is your best asset when it comes to investing. And the earlier you start the better, right? That’s why when you start your employment, you start to build up your pension early on, and that gives you the opportunity to run through those peaks and troughs in the in the market. You know, there will be highs and there’ll be lows. This year is just an incredible example, right, of the peaks and troughs you see in the markets. It is absolutely nuts, right? When you’ve seen when the tariffs were introduced and the big fall in the markets and then the recovery since, and that’s only within a few months, right? And uh, and actually it’s really important when it comes to investing, you do take that longer term view around it. And you know, there will be that volatility, but the the longer you allow that that investment, then that will kind of smooth though that out. And another uh avenue that people take is you know the pound cost averaging or dollar cost averaging approach by putting in a little bit each month. And I know it’s a cliche, but it’s a cliche for a reason, a good one. It’s about time in the market, not time in the market. And and it’s a really important um uh principle. And by doing that, you you know, you you’re allowing yourself to get the best opportunity from that investment growth by but having time on your side.

[26:54] Sammie: Yeah, absolutely. I’m so glad you said that as well, because I think it’s really important that people should know that you when you’re getting into this, and we call it the five-year rule. It’s like if you need that money within the next five years, do not invest it because it you don’t want to take risks because it’s very difficult to say what’s gonna happen over five years. But history will tell you over five to ten year, ideally 10-year plus period, that things have gone pretty well, even if there has been a significant crash within that. And then to follow on from that is that you are going, as we’ve seen this year with Trump’s Liberation Day, we saw you know 14% pullback within a um a couple of days, which is actually 24% off its all-time highs in February. And so we you that’s a very natural thing to happen in the stock market. Things don’t go up all the time, but uh it when you zoom out, they do. Um, and a crash can happen once on average every 3.3 years. And so then that’s 20% or more. So if you’re gonna be investing for 20, 30 years of your life, you’re likely to see you know a decent handful of these. You’ve just got to be ready for that.

[28:00] Rajan: Yeah, absolutely. And you know, I’ve since I’ve been investing, there’s been you know ups and downs, you know, whether it was following the you know financial crash um around 2008, then we’ve had the experience through COVID, um, and then you know, tariffs recently as well. So, you know, the markets do tend to recover. And I think it’s just accepting that look, my money will go up and down, but as long as I can take that long-term approach and, as you say, zoom out, then historically that trend will typically be um upwards. But it’s making sure that you have those things in place, that you are aware that your money could fall in value and you accept that that’s really, really important. And and making sure you have got that firm financial footing before you start investing.

[29:48] Sammie: Yeah, uh yeah. So, like, don’t have emergency fund and you don’t have your short-term savings, and please do that for and you haven’t paid off your debts.

[29:54] Rajan: That’s really important. Absolutely.

[29:56] Sammie: Yeah, because what that actually does is uh from a psychological thing of an investment, if that stock market crash happens, that’s all you’ve got. And so then you’re like, wow, I’m left holding the bag here if this goes wrong, and then you worry if it goes down even more and more and more, and then you make a decision which is very bad for your money at that point.

[30:16] Rajan: Exactly. No, you want to be not panicking or making decisions that you regret over the long term. Um, and and that’s really important. Like, you know, you we talk about emergency fund a few times, but let’s say you know the worst happens, you know, uh, with your role or something else happens, then you know you don’t be rushing into something you don’t want to do. And you know, having that fund in place gives you that opportunity to go on to the opportunity, hopefully, um, sooner rather than later that you want rather than forcing yourself into something that you don’t want to do.

[30:43] Sammie: Yeah, God forbid, like you lose your salary and the markets are down at one point and all your money’s locked up in an index fund, and suddenly you’re having to go dip into that. That’s not that’s not a good way to set this up. So, you know, it’s worth sacrificing a few months getting an emergency fund in base just to set you up for the future. Um moving on to sort of cash ISAs, because um, it’s in the news at the moment, and you did a bit of research on this. 68% of people don’t want to see cash ISA allowances reduced, which is uh something which as Rachel Reeves has been touted in the press saying. Um why do you think that reaction was so strong? Because 68% is a lot.

[31:22] Rajan: It is. Um, and it’s one of the things once someone has something, there’s that loss aversion, right? You don’t want to take it away from them. So I think there’s a large element of that. But what we’ve seen is cash ISAs have grown significantly in popularity, right? I think it’s something like 400 billion pounds are now invested in cash ISAs, and they’ve really increased significantly because interest rates have gone up as well. And I think there’s that cultural factor we we talked about around people having a higher propensity towards saving uh rather than investing as well. And we’ve also seen people’s taxes um uh rise as well. So people have a savings allowance. So if you are a basic rate taxpayer, you have £1,000 saving allowance of interest and that you wouldn’t pay any tax on, but after that you would. And if you’re a higher rate taxpayer, it’s £500. But what we’re seeing is those uh tax brackets have been paused, um, and so more and more people are moving into the next tax bracket, and so people are finding, oh, I’m having to pay income tax on the interest uh that I’m earning, and those tax brackets are set to be frozen again, um, or like to be frozen again in in the budget based on the reports that we’re seeing. So there is that element of okay, I’ve got this opportunity to put this amount of money away, I don’t want that reduced, I have a higher propensity towards saving, plus, my allowances aren’t working as hard for me as possible because interest rates have risen and I’m moving into the next tax band as well. So when you put it all together, you can see why people are really committed to uh to the the cash house as well. I mean, we did this research, we weren’t surprised that you know a a large majority of people wanted to keep the 20,000 as it was. But I think we need to kind of look at what’s Rachel Reeves’ rationale for making these changes. And she says that it will encourage investing within the UK and just generally it will encourage more people to invest if they reduce the allowance. So what she’s saying is look, the 20k allowance or reports be saying is 20k allowance will stay as is uh for ISIS, but it’s a cash element of it that will be reduced. And you know, reports were initially it’ll be reduced to 5k, then it was 10k, the latest it’s 12k. So you it’s been moving around quite a bit, and there’s been quite a bit of a reaction to it, not just amongst customers, but actually the building societies as well, because building societies um borrow short and lend long, and they so they need that money that’s coming through from these savings to then lend out to customers whether it comes to loans or to mortgages, and they’ve raised a challenge around look, if we’re seeing less savings coming in, then we might not be able to provide as many loans and as mortgages as well. So when we did this research, we weren’t you know um usually surprised by that. So going back to Rachel Reeves and the uh and and you know the the re rationale behind it, if we look at investing as part of the same research, we found that the plurality, the highest proportion of people, 37% of people, would put that money into a savings account rather than invest.

[34:23] Sammie: Yeah.

[34:24] Rajan: 20% said they put it into a current account. So over half of those people, if the cash allowance would be reduced, they put it into a savings account. Less than one in five, eighteen percent would invest in UK stocks and funds. Eighteen. Eighteen. So less than one in five. And I think that’s the challenge. If our aim is okay, I’m gonna reduce the cash ISA allowance with the aim of encouraging more to invest, based on the research, it’s unlikely that’s gonna happen and it’s gonna have a limited impact. So it’s less about taking a stick to save us, but actually incentivising investment more. And there are a lot of things that Rachel Reeves has announced that are actually really positive. Um, for example, revealing the risk warnings as well. Yeah. So when you know when you invest, all you see is the negativity, capital risk, your money can go up and it can go down.

[35:20] Sammie: Yeah, 76% lose money with this provider.

[35:23] Rajan: Yeah, absolutely. And so when you get the presented with that, of course you’re gonna be concerned and you’re gonna go, okay, I’d rather go to savings. But then there’s also a risk with savings, right? You highlighted it earlier when it comes to inflation risk. If you’re not putting your money into a savings account that is earning a rate that’s higher than inflation, then that money is being eroded. The value of that money is being eroded. And there are a lot of people currently in that situation. When you look at the average bank rate, it’s I’d say around over 2%. Bank of England rate, base rate is four percent. You can get four, four and a half percent, as you mentioned earlier, from other providers as well. But a lot of people will be sticking with their bank, yeah, and so their money is being um eroded away, yet they are selecting this option if the cash is reduced. So it’s really important rather than taking kind of stick to kind of encourage that, and one of those ways is through looking at the risk warnings and thinking, okay, we need to take a you know approach where actually there’s risk with saving in terms of value of your money, and similarly to investing, what we were talking about earlier, where we’re talking about the the long-term advantages of investing, and over time, most you know, uh historically you’ve you’ve um earned inflation beaten returns. So it’s important to get that balance um better moving forward. And I think you know, for some things that are particularly high risk, then of course, you know, you need to have those risk warnings in place. So people aren’t making decisions um, you know, without having those warnings in place. But it’s getting that balance right that’s really important. Financial education is important as well, investing investment education, and I think it takes you to a certain level. And I read um this week that there’s going to be more uh investment education in schools. And my own personal take is that look, it can’t do any harm, and it will help people to when it comes to you know, young people when it comes to think about the finances. But let’s be honest here, how much do we remember what we were taught in in school? There’ll be some some principles that we do remember, but we’re not gonna remember like everything, and there’s so much that goes on in life or for our university studies that then takes precedent over that. And I think it’s those moments where money becomes important, is where you’re gonna be more engaged. And I think probably when it comes to university level, and then you’ve got to handle how am I gonna pay you know for my accommodation, how am I gonna pay back my student loan, that’s where that you know um engagement begins then. So while I’m in favour of financial education, I think it’s making sure that you are applying that education at the right moments. Um, and you know, if you do it too early, then you know it might tick a box, but actually, I’m not sure what what the impact um is gonna be as well. Um, and then you know, it’s making sure that people have the right levels of support uh available to them when it comes to investing, and at the moment you’ve got this gap, right, between I’m gonna get some really general guidance, which okay is a bit helpful, tells me about something, but won’t help me go in a certain direction, or on the other side, advice, which can be quite expensive. So, you know, um it’s important that now the government and the regulators talking about this target support where people like you can get recommendations and that will help people, I think, to make better decisions. And now what we’re seeing with AI and the access for people to get other information, you can see it all coming together. So I think there are some good things around what the government and and the regulator have been doing. But if the fundamental thing is reduce the cash ISA allowance to get people to invest, it doesn’t look like this gonna work. Where it may work, which I think may be part of the Chancellor’s thinking, given the challenge she’s got with um her fiscal rules and making sure that that black hole is filled, is it will raise more tax because people are gonna put more money into cash savings accounts that are outside of ISA is gonna put more money into current accounts, and because they’ll go over the savings allowance, that means they’ll get taxed on their interest.

[39:18] Sammie: Yeah, yeah, I struggle with the so 11% of people max out their stocks and shares ISA each year, and that number increases to 35% above 10,000. So it’s not a lot. And so it’s an allowance of 12,000 a year at that point, it which affects not a lot, not yeah, not large swathes of the nation. So even though there may be changes, you can still carry on at those points just as you are for the majority of people. And I think that that’s what the news stories don’t always cover. And so I always say to say to these things, take that with a pinch of salt. When you look at the numbers, like it’s it’s not going to affect you. If you’re saving 200 quid here, 300 quid there, carry on. Um and the the other thing you said there as well, that there’s over 330 billion pounds currently sitting in current accounts or accounts earning 2% or less.

[40:15] Sammie: Yeah.

[40:15] Sammie: Which is mind blowing.

[40:17] Sammie: Yeah.

[40:18] Sammie: Um, and so just open a cash ISA and get that money moving, or open a savings account, or look at putting that money to work.

[40:25] Rajan: Or even more mind-blowing, it’s 300 billion that’s earning no interest. Is in that’s you know, that’s incredible. That there’s people that have got money. Now, there may be particular reasons for that, but the the overwhelming majority of that money will just be in accounts where people just have forgot about it. Um, and you know, we talk about actually making sure you get a rate that’s above inflation, they’re getting no rate on that interest. So yeah, it is really important to make sure that people are aware of uh the different options available to them because you know uh people work hard for their money and that money should work hard for them.

[41:00] Sammie: Yeah, absolutely. And to finalise on that point as well, if you are gonna say invest into UK companies, where are the allowances gonna be placed on that? Because you’re putting money into a stocks and share as ISA. If you’re putting money into a global index fund, it’s three, four percent UK if you’re lucky. If you’re S&P 500, that’s none. So then like, where are they gonna put their money? Well, they want the sexy stocks that belong in the you know Silicon Valley, the Nvidia’s, the uh Facebooks, and like they’re the sexy stocks. You’re not gonna look at Shell Corporation or like Anglo-American and think, yes, I’m gonna get well up for that. That’s the you’re not. And so I think they they would need to look at that as well. And actually, it’s the inflows into uh the lower end of the UK stock market, which is most crying out for help at this point, and um companies there are finding it very difficult to raise money. And so, you know, where are you are you looking at the small and medium caps? I’m not sure they are based on the you know match-in-house conversations as well.

[41:58] Rajan: Yeah, yeah. To your um, you know, very point, you look at the different investment platforms, and a lot of them will list what are the most popular investments. Tesla. Yeah, yeah. It’ll be it’ll be the Magnificent Seven, the big seven US stocks, they’ll be invariably in the top ten. And when you look at what is the biggest stock market that people are investing into, it’ll be the S&P 500. So it’ll be these US stocks. And to you know, I think the Chancellor of the Treasury are well aware that look, this is gonna be an issue in that it’s not a good look, right? The money’s leaving UK banks and building societies, which could be helping people to fund loans and mortgages. Yes, all that capital is then moving out into US companies. Um, and particularly given you know the UK’s economic challenges where there is that drive for growth necessary, it’s gonna be not the result that the chance they’re looking for. And then you can see why, as part of this, they’re now looking for okay, let’s block out a certain element for um UK stocks, but then that presents another challenge, right? Because ISIS tests then become more complex, and you know, there’s there’s other ways that you can bring maybe the ISIS together in one place for simplification, but then if you’re then introducing this UK element, not only does it make it more complex for the consumer, it makes it more complex for the investment platforms as well, and then they have to adjust to reflect this um uh new reality as well. So I think it is something that overall there is an need to encourage people to invest more, to get those longer-term returns and make their money work harder, but it’s about finding the right incentives, whether that’s giving people maybe a starter when it comes to investment, particularly younger people, so they can get into that habit from from a younger age as well. You know, if you look at the US, they’re starting even younger. So, you know, there’s so many controversial things around Trump. But actually, one of the things that he has introduced um is you know, when a child is born, they will start off with an investment fund and that will build um you know over time. And I know that’s been something that’s been discussed at a policy level um in the UK as well, and then you can begin to see from the very start how your investment is performing and start that engagement from a young age. And junior ISIS is another way, you know, to do that, you know, getting at the right point your children involved in showing them where their investments are heading and showing them what is happening with with the growth in their ISA as well, and you know, get them to think about the types of companies because you know we’re all consumers and we’re all and they will be buying things and they’ll see, oh, that’s interesting. This place where I brought from, I’ve I can see its stock, and this is how it’s performing as well. So getting them involved from a younger age, I think, is very important when it comes to you know that the actually direct experience of it rather than where we’re talking earlier about education in schools where there isn’t that necessarily that direct experience of something.

[44:44] Sammie: Yeah. Ah, I’m so glad you said that. And uh and it is difficult because you don’t want to make the ISA more complicated than it is. There’s only five I think it’s 5.5% of the UK have a stocks and shares ISA. You make it even more complicated with a layer multifaceted, you must have five grand of money going into UK companies. Well, guess what? You just probably half the amount of people that have stocks and shares ISA or open them at that point because it’d be even more hard from someone that spends their entire life explaining these things to explain again because there’s another layer involved there, it’s already hard enough. Um, so I do agree, like perhaps it’s one account element of savings, and within it you can invest some of the money or whatever that might be, a simplification um would be right for me. Um, but we’ve got a bit of work to do, and there’s no wrong or right answer with this. And if they do have reforms around that and the money flows into the FTSE one hundred, well, guess what? They’re global national corporations anyway. So you’re not massively helping the UK. A lot of them will move that money offshore. So it’s uh it’s a very big problem. I wouldn’t want to be the Chancellor coming into this budget.

[45:48] Rajan: No, no, it’s um a really big challenge. And I think you know, they made Pledges during the election, you know, around we’re not going to raise income tax, we’re not going to raise national insurance, we’re not going to raise VAT. And now they’re finding, well, you know, we’ve got this um black hole when it comes to the fiscal rules, we need to address it. What would be the simplest way to do that in terms of not having to do lots of different tax changes would be through income tax. So it is a really, really challenging um uh time for the Treasury. And, you know, I think uh there’ll be it’ll be a big budget on the 26th. Um, and you know, I think all of us are gonna be infected in some way.

[46:23] Sammie: Yeah, no, absolutely. And look, are you seeing on the ground at Plum at the moment? Because a lot of my friends, for instance, have stops there in uh investment contributions, and uh I’m asking them why, why, why? And they all say to me, Wow, the budget’s gonna be massive, like it’s gonna be a huge drop. And like I’m like, well, you you that that isn’t always the case. Sometimes they it’s a very negative budget, but the financial markets love it, and so you’ve got to be very careful that you don’t like break your plan. But are you seeing some people pull back at the moment and being a good thing?

[46:55] Rajan: I think we’re seeing I don’t think we’re seeing um significant change. I think where we, you know, naturally, like any other platform, we saw some around the Liberation Day and the tariffs. Um, and it was you know, that was a really good example because I think a lot of the messages that a number of platforms like Plum were giving out was look, you know, volatility is a part of investing. And you, you know, we were providing some examples and saying that these are the key things to you know think about, you know, moving forward and take that longer term approach. And look, we know we saw that and what happened over the subsequent months and now the AI rush as well. So, you know, look, different customers are gonna be um uh responding in different ways, but to your point, that there is a lot of uncertainty at the moment, absolutely. Um, and I think it is challenging when you are hearing from the government the constant drip-drop of tax, whether it’s gonna be income tax, um, whether it’s gonna be a rise in capital gains tax, whether it’s gonna be increasing dividends uh tax as well, a lot of the discussion is around taxation, and then you amplify that with all the uncertainty generally um in the world as well. And people are you know naturally a bit more apprehensive about putting that money to work um in in different ways, and you know, that I think that has had a role in the amount of people that are saving, and and rates are higher, so people can go, okay, look, I’m a bit worried about what’s going to happen, I’m gonna be a bit more cautious, and I’m gonna put that money aside in savings and get a good return on that. And it’s really interesting with the Bank of England um rate uh decision, um, and it was so close, it was five to four, it was really split, and there is a concern that people just aren’t spending enough, and that is really damaging the economy. And by keeping rates as they are, that will incentivize that saving even more. So, you know, when when rates do become lower, then you know people see the less benefit from saving and then and may then um decide to um spend more, and that will help support the economy. And and I think if people can see like tangibly, you know, there are you know, there is like you know, less uncertainty, then then they’ll make you know more changes as well. And we’ve you know, we’ve seen when it comes to people’s wages, they have increased uh above the rate of inflation, but then there have been things that they have to pay for on a regular basis that have increased considerably as well, you know, like their bills, like their groceries. You know, just look at the basics of things like eggs, cheese, milk, and and how much those prices have risen, even those treats like chocolate um or coffee, you know, those things are. Coffee’s nuts, man.

[49:28] Sammie: I can’t get my head around that.

[49:30] Rajan: Well, this is the thing, you know, Britain um imports half of around half half of its foodstuffs from abroad. So Britain is more susceptible to prices changing elsewhere. And when you factor in things like um, you know, there’s been certain um uh disease outbreaks, um, the effects of climate change as well. You could have more absolutely, and then that’s led to some of these um, you know, prices rising as well. So I absolutely get where people are at and and why they are saving more. Um, and I think you know, this budget will be a big moment, and it is having a big effect, you know, in terms of certainty when it comes to consumers, but also businesses as well. It was really interesting, you know, looking at the results from ITV yesterday, and they were saying businesses are uncertain as well, because again, how much taxes are gonna hit them to um hit them too. So they’ve seen less advertising purchasing as well. So you can see it’s becoming a bit of a um a vicious circle, and it was it was interesting that the government pushed back the date of the budget. Um I I’m not sure about the reasons for that. Maybe it was in the hope that the markets would improve, particularly when it comes to yields and and and bond prices, and actually to their credit, because I think they’ve been clear that look, this is going to be a big focus for them. Bond yields have come down and the prices of bonds have risen.

[50:47] Sammie: So until last week.

[50:49] Rajan: Yeah, yeah, until recently. But overall, we have seen that kind of direction downwards recently. Yeah, and I think that comes from what the chancellor’s been saying, you know, around like this being a priority for her, looking at tax and also potentially looking at um at spending cuts as well. So you know, let’s see what comes out from the budget, and hopefully it gives more certainty to people.

[51:06] Sammie: Okay, onto a more positive angle of um ISERs, because we’ve spoken about cash ISES, spoken about stocks and shares ISES, but um another fantastic ICE out there for me is lifetime ISES. Yeah. Um, for someone who doesn’t understand a lifetime ISO, can you explain how a lifetime ISER works in the most simplest way possible?

[51:25] Rajan: Yeah, absolutely. So um lifetime ISES help you to either buy a uh home or to save money for your retirement, and you can put in £4,000 a year, and what the government do is they will add a bonus uh to that of £25. So that £4,000 can become £5,000 with an extra £1,000 um government bonus. So it’s effectively free money from the government. Now it is important to remember that those are the two purposes of a Lifetime ISAR. You can only use it to buy a home or you can only use it for retirement. You can open a Lifetime ISAR um at any point before you turn 40, and then after that, you can make um contributions to a certain point um as well. And it it really does help you if you are looking to buy a home. You know, that uplift, you know, 25% is is very, very significant, but it is important.

[52:19] Sammie: It’s a pretty decent return, yeah.

[52:21] Rajan: And you know, even if it’s just in cash, you know, that’s you know significant because you get the interest on top of um you know the the bonus as well. And if you can’t afford that £4,000, Max, then contribute what you can.

[52:33] Sammie: Put a pound in.

[52:34] Rajan: Yeah, exactly. Um, and you know, if you think, okay, you know, you are um gonna need it um at some point, actually, yeah, just bring that pound in and having it open then allows you to then contribute more uh moving the future when you can, and you can then take um more advantage of of the ICE itself. And it is because it’s an ICE, it’s tax-free. So any interest that you earn or any gains that you make, you won’t be paying tax on.

[53:01] Sammie: Yeah, no, absolutely. So it’s your first home or retirement. Yeah. But once you’ve saved for your first home, you can still have one for retirement, right? So you can reopen one, which is wicked, right? It’s such a incredible account. But there’s a there’s a slight discussion around the cap because when you buy your first home, there’s a 450,000 pound limit, which gets you a shoebox in most of London. Um, and so there’s a discussion around increasing that allowance. Do you think that’ll be done in the near future?

[53:32] Rajan: So that the Treasury Committee, um uh the the select committee looked into licers and the and the effectiveness of um of of Lifetime ISAS and we contributed to their call for um uh evidence around this, and we made that very point. You know, well there’ll be uh you know, most homes around um for someone buying their first home will be 450,000 pounds or under, then that’s fine. But what we’re seeing in particular parts of the UK, and as you mentioned in London, prices have increased. And when they introduced the Lysa, they haven’t increased um the uh house price limit. And if they had increased it in line with inflation, I think you’re talking over 600,000 pounds for the house price limit. So I think you want to make sure that the lifetime ISA works for anyone looking for um looking to buy their first home, and by restricting it at that level, it means for a lot of people it won’t have the advantages that it should do, and you’re restricting the number of locations in which they can buy um their first home. And so, yeah, we’ve we’ve been calling for that limit um uh to be um increased as well. Now, whether it’ll be increased is really interesting because I I don’t think from what I saw from the select committee’s response, they particularly focused on the house price change, they focused on um other elements of it, for example, the penalties, which are very, very sizable. And again, you know, when you’re finding that house prices are rising and you’ve done all the right things, you put your money aside, you’ve used the lifetime ISO, you earned the bonus, and then you find the property you want is slightly out of reach, and then you’re paying this really high penalty on top. Yeah, it it just seems really, really unfair. So I think that you know something needs to be done um around that.

[55:20] Sammie: Well, if they started with the penalty withdrawal, that would be fantastic, right? Because there’s over a hundred million a year in penalty withdrawal. It’s just nuts, isn’t it? And so if you don’t if but if you do put money in there, make sure you can afford the house at the moment, and also make sure that it’s going towards the house or retirement. Yeah, otherwise, you know, you cannot go up and get that money. You get the you get the penalty withdrawal and you lose the bonus.

[55:42] Rajan: Absolutely. And I think those penalties are pretty severe. I know they were slightly reduced during um the the pandemic, but they but it it can be really tough, and you you know the those numbers are incredible. Um and it it shows I think this is a product that has such high potential and can do so much for people when it comes to achieving their home first home or when it comes to the ambitions for retirement, but it isn’t working the way that it should do.

[56:08] Sammie: Yeah, 100%. And Plum opened one in July.

[56:11] Rajan: Yes, we did, yeah. So you know, we now offer stocks and shares ISA, we offer Cash ISA and Lifetime ICE, and you know, to the point around, you know, we’re making it as accessible as possible. Also, we want to uh make sure people are earning high returns if we’ve got you know, make sure that we continue to offer you know competitive rates across um all our accounts as well. And we’ve seen a really, really good response to launching it because I think when it comes to digital tools, it does tend to be um younger people who who use it, um, although our audience is now quite spread because since the launch of Cash Isa as well, but now you know they they may have been using our automated tools to save um for those very reasons, for home and for retirement, and now with a lifetime ISA, they can get that bonus on top.

[56:57] Sammie: Yeah, it’s amazing. But um Rajah, I’ve loved this. This has been great fun. Um, I would could talk to you for about this stuff for hours, as you could possibly imagine. Um, we’ll have to have you back. Um, but where do you want to send people today?

[57:10] Rajan: Yeah, so um I direct them to withplum uh.com, which is um where they can get a lot of information about Plum, or go to um the App Store or the um Android store and they can uh download the app from there. Plum is uh free to download and you can see all the different uh products and services we have available.

[57:29] Sammie: Yeah, wicked. I’ll leave a link in the show notes below for people as well. If you want to go down there and head over, you can click on that and it will take you to the website of the app store. Um but yeah, it’s been real fun. Thanks so much for coming on, mate. Thanks so much.

[57:42] Rajan: Pleasure.