Savers who put money into a stocks and shares ISA ten years ago could have trebled their cash, according to analysis for The i Paper, while someone who put their money into a cash ISA would have far less.
Someone who put £10,000 into a cash ISA at average rates back in February 2015 would have £11,085 today, analysis by Hargreaves Lansdown shows, but someone who put their money into a stocks and shares ISA could have as much as £33,524.
Experts say it shows how much more “growth potential” stocks and shares offer, compared to cash.
Though cash savings rates are relatively high at the moment compared to in recent years – with rates of five per cent or more possible – accounts have offered paltry returns for much of the past decade, with many accounts paying interest below one per cent.
Comparatively, investments have provided far better returns. Someone who put £10,000 into a stocks and shares ISA ten years ago would have seen their money grow by 235 per cent, as opposed to 10.9 per cent for cash.
For someone who put away £10,000 five years ago, they would likely have a return of around seven per cent in an average cash ISA – taking their savings to £10,703 – or 87.6 per cent in a stocks and shares ISA – taking their savings to £18,763.
ISA accounts allow customers to shield their money from tax. They can put £20,000 away into them per year and pay no tax on the returns.
Alternatively, people pay tax on their savings or investment growth at their marginal tax rate after they have earned over a certain limit – with basic rate taxpayers only allowed to earn £1,000 tax free, higher rate taxpayers £500, and additional rate taxpayers £0.
Money earmarked for ISAs can be put into cash ISAs or stocks and shares.
Cash ISAs pay a guaranteed rate, while the returns on stocks and shares can fluctuate massively depending on the performance of investments – and you can lose money.
Over long periods of time, stocks and shares tend to outperform cash.
Sarah Coles of Hargreaves Lansdown said: “Cash ISAs and stocks and shares ISAs are very different beasts. They both offer valuable tax benefits, which can make a real difference to savers and investors.
“A cash ISA is a sensible home for your emergency fund, or money you will need during the next five years. In both cases, cash is the right home for your savings, and the cash ISA protects it from tax. This can be particularly useful for higher earners or those with large balances, who face heftier tax burdens.
“A stocks and shares ISA makes more sense for money you can tie up for five to ten years or more. The value of your investment will rise and fall in the short term, but it offers much more growth potential than cash for the long term.”
Last week, it was revealed that the Government is refusing to rule out scrapping cash ISAs or limiting the allowance of money that people are allowed to put into them.
The Treasury is considering the possibility of scrapping or limiting cash ISAs in a bid to encourage Britons to put more money into investments like the stock market.
The Government has repeatedly refused to rule out putting new curbs on the savings accounts and a minister has complained that too much money is sitting in them rather than being used more productively.
No decisions on possible policy changes have been made and nothing is expected to be announced before the next Budget in the autumn, with any changes likely to take effect from April 2026.
City minister Emma Reynolds said to a House of Lords committee this month: “Why have we got hundreds of billions of pounds in cash ISAs? We have failed to drive an investment culture that we see in other places that allows people to invest their money.”
There has been an increase in savers rushing to open cash ISAs or depositing more money in recent weeks amid fears they could be scrapped.
It is worth considering getting a cash ISA instead of a more typical savings account if you have, or might pay, tax on your savings interest.
If you are a basic rate taxpayer and have savings of £20,000 earning five per cent or more you will likely pay tax.
Earning the same amount of interest as a higher-rate tax payer, you would only need £10,000.
Would I still be better off with a normal savings account even though I pay tax?
According to consumer website MoneySavingExpert.com, there is a simple method to help you compare normal savings accounts (non-ISAs) and cash ISAs, to decide which is better. Take the rate on the ISA you’re looking at and multiply it by:
– 1.25 if you’re a basic-rate taxpayer– 1.66 if you’re higher-rate taxpayer– 1.82 if you’re a top-rate taxpayer
The result of that sum is the rate you need to get on a normal account for it to be a better option that your ISA. If normal savings don’t pay more than that, then you’re better off in the cash ISA.
At the moment, ISA accounts pay similar to or in some cases more than normal savings accounts.
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