STOCKS and shares Isas are not just for people with lump sums to invest, they can also be very attractive if you want to save regularly.

If you use them for this purpose, they are very flexible and, of course, tax-free. You can save modest amounts each month, from £20 upwards, and you are not locked in for a fixed savings period. You can stop saving whenever you like, restart, vary your savings and withdraw all or part of your money at any time, and all without penalty.

As with any investment in the stock market, you must be prepared for your savings to fall in value. But provided that you leave your money invested for at least five years, there is a good chance of receiving a better return than you would from a cash account.

So why don’t more people have regular savings Isas? The problem is that very few Isa managers actively promote regular savings schemes, even though most offer them, because they don’t make any profit out of small savers in the early years. They prefer investors with chunky lump sums.In recent years, however, these wealthier investors have been much more reluctant to invest in the stock market.

Mark Dampier, head of research at Hargreaves Lansdown, the independent financial adviser (IFA), says: “Lump-sum investors worry about getting their timing right. They worry that they will invest their money and find it is worth 10 per cent less the next month. Regular savers don’t have to worry about timing. In fact, they will be better off if the markets do go down initially because their contributions will buy more shares as prices fall.”

When stock markets rally, lump-sum investors rarely get in quick enough, whereas regular savers receive the full benefit of the upturn. Three years ago, for example, few lump-sum investors felt brave enough to invest as the stock market was approaching rock bottom at the start of the Iraq war. On the other hand, a regular saver who started putting £50 a month in a FTSE 100 tracker fund via an Isa in February 2003 would now have an investment worth £2,438 — a £600 profit. However, not all periods will produce such a good result.

Philippa Gee, investment director at Torquil Clark, another IFA, believes that more people would be attracted to Isas if there were a greater focus on regular savings. “Many savers are put off stocks and shares Isas when they see sums of £7,000 mentioned. If Isa providers made a greater effort to attract regular savers, I think they would get a lot more people to invest.”

Halifax is one of the few providers of stocks and shares Isas actively to promote regular savings schemes in recent years. It now has the largest number of regular Isa savers (193,000) on its books. Nigel Greenwood, Halifax’s product marketing manager, says: “We find that there are many people who do not have capital but do have excess income they would like to save but are not getting any advice because other companies, including most high street banks, are concentrating on the wealthier end of the market.”

Mr Greenwood says that the two main groups of people attracted to regular savings Isas are those saving for their children or for their retirement. He says: “Many parents prefer the idea of saving using their own Isa allowances rather than putting money in their child’s name or via the Child Trust Fund because it means they can retain control.

“Similarly, when saving for retirement, although people miss out on pension tax relief when they put money into an Isa, they prefer to know that they can access their savings if they need to. They also find Isas a lot easier to understand than pensions.”

Halifax believes that the Government needs to bear this in mind when reviewing its plans for Isas this year.

Some of the drawbacks that once affected regular savings Isas now no longer apply. Ms Gee says that it used to be more difficult for regular savers to obtain discounted initial charges but now the same deals are in place. Savers also have just as much investment choice as lump-sum investors.

Ms Gee says: “FundsNetwork, the funds supermarket, will now accept regular savers and we will give them the same discounts, so initial charges will be between 0 per cent and 5 per cent.”

Regular savers can choose any fund for their Isa, although intermediaries tend to recommend higher-risk funds.

Mr Dampier says: “The more volatile a fund, the more savers can benefit from pound cost averaging, which means that the average price you pay for your investment is reduced because of the ups and downs in the market.”

He suggests that those saving for the long term could invest in an emerging markets fund such as Aberdeen Emerging Markets. If they prefer something closer to home, he suggests Framlington UK Select or New Star Growth.

Ms Gee likes Alliance Dresdner’s new BRIC fund investing in Brazil, Russia, India and China. For those who don’t want to take quite so much risk, she suggests a multimanager fund such as T. Bailey Growth.

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