An investor could have made almost £90,000 more than the average cash Isa saver since 1999 with the same amount of money – if they chose the right place to put their money, new data shows.
Someone who invested £1,000 per year in the Investment Association North American sector for the last 25 years could have seen a return of as much as £120,660 as of the end of 2024, according to research by AJ Bell.
In comparison, someone holding a cash Isa would have seen a return of just £34,392, including the £1,000 yearly contribution.
This return would fall behind the rate of inflation over the period, which would have reached £38,992.
Other investment options have also delivered healthy growth. Investing £1,000 on a yearly basis in the IA Global sector would have returned £83,603 – almost £50,000 more than the average cash Isa return.
The data arrives as speculation mounts that the Chancellor will rein in cash Isa investing to try to encourage more people to invest, with the hope that this will boost the UK stock market.
Investing platform Trading 212 says that its customers often choose to do both, with 34 per cent of all of its cash Isa holders also holding a stocks and shares Isa or investment account.
Cash is king? AJ Bell says investing in certain sectors has delivered far greater returns than a cash Isa over the past 25 years
Critics say cutting the annual cash Isa allowance to as little as £4,000 would be unlikely to lead more people to invest and if they did, they are would be more likely to choose global funds over those backing UK firms.
AJ Bell’s figures show that investors who did back the UK market in their Isa would have fallen behind where they would have been if they invested globall.
Choosing instead to invest in UK firms, based on the IA UK All Companies sector, investors would have returned £59,082 over 25 years.
More conservative investors placing their money in the UK gilts sector, would have fared worse than cash Isa holders, however, seeing a return of just £32,450.
However, savers should bear in mind that interest on cash held in Isas is tax-free, unlike investment gains and dividends held outside of a tax-wrapper.
Investments held within stocks and shares Isas are also free of tax, those held in general investment accounts are not.
Laura Suter, director of personal finance at AJ Bell, said: ‘Savers are paying the price for sticking to safe havens, as cash Isas have lagged the returns of stock market funds since the Isa was launched in April 1999.
‘While cash is currently enjoying a sweet spot of higher returns, and cash Isa interest rates have risen this Isa season, a glance at the long-term performance of different markets shows cash is definitely not king.’
Even if they invested £1,000 in 1999 and didn’t add any more, investors in IA North America would have returned £5,964, compared to cash Isa growth of just £2,016.
The IA Global sector would have increased the investment to £4,641, while the UK All Companies sector would have grown it to £3,300. Inflation would have increased the stake to £1,856.
Suter added: ‘Some savers might be over the moon with doubling their money, but looking at inflation growth over that time will bring them back down to earth with a bump.
‘Those average cash Isa returns have barely eked out a better return than inflation – meaning savers’ money is only just outpacing rising prices.’
Don’t dismiss cash savings
Investments have historically tended to beat cash in the long run. However, this isn’t true of all investments and there is no guarantee this trend will continue in the future.
Suter said: ‘Clearly these figures are only averages, so a savvy saver who switched their money to the top-paying cash Isa account could have earned a higher return.
‘But equally, someone invested in the top performing investment fund could have generated far higher returns than the average.’
Before starting to invest, savers should ensure they have a cash reserve that they can access whenever they need.
It is generally recommended that you only invest money that you don’t need to access within a five-year period. This allows investments time to increase in value without being impacted by short-term price movements.
Savers should first build an emergency pot that can cover at least three months’ worth of essential spending. Ideally it should cover six.
> Top cash Isa accounts: Find today’s best rates using This is Money’s tables
AJ Bell also warns that you should pay off any debt you have, as interest payments will counteract any gains that your investments make.
Suter said: ‘Make sure that you’ve got your emergency savings in cash, as well as any money you’ll need in five years – for a big holiday, a new car or your first home, for example.
‘Any savings goal that’s further out than five years could be ideal for investing.’
However, many people are also apprehensive about making the step into investing.
Suter added: ‘Some people prefer the security of knowing their money is safe from market fluctuations, while others need short-term money or easy-access savings.
‘But it shines a light on the missed wealth opportunities for those who are defaulting to cash and not taking that first step into investing.’
Currently, over a million people have more than £50,000 in a cash Isa, and three million have more than £20,000, according to Financial Conduct Authority data.
‘Being in cash should be a conscious decision, rather than unthinkingly hoarding it,’ Suter said.
How to start investing
‘Investing for the first time can feel daunting,’ Suter said. ‘If you don’t feel confident picking which countries or sectors to invest in you can defer asset allocation decisions to a professional.
Online investing platforms offer both DIY investing accounts, as well as those that are managed, be that by a professional or a ‘robo-adviser’.
Before committing your money to investments, it is wise to do some thorough research.
Suter said: ‘Investors also need to make sure they understand what they’re buying, and why they think it will make money – whether it’s a fund or a share.
‘All too often investors are lured in by the promise of high returns or invest because a friend has recommended it, but you need to make sure you understand how the investment works and all the risks before you commit your money.’
Investment platforms also come with varying fees, so it is best to shop around to find the platform that most suits your needs.
Compare the best DIY investing platforms and stocks & shares Isas
Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare the best investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.
>> This is Money’s full guide to the best investing platforms and Isas
Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
| Admin charge | Charges notes | Fund dealing | Standard share, trust, ETF dealing | Regular investing | Dividend reinvestment | ||
|---|---|---|---|---|---|---|---|
| AJ Bell* | 0.25% | Max £3.50 per month for shares, trusts, ETFs. | £1.50 | £5 | £1.50 | £1.50 per deal | More details |
| Bestinvest* | 0.40% (0.2% for ready made portfolios) | Account fee cut to 0.2% for ready made investments | Free | £4.95 | Free for funds | Free for income funds | More details |
| Charles Stanley Direct* | 0.35% | No platform fee on shares if a trade in that month and annual max of £240 | Free | £11.50 | n/a | n/a | More details |
| Etoro* No investment funds or Sipp | Free | Stocks, investment trusts and ETFs. | Not available | Free | n/a | n/a | More details |
| Fidelity* | 0.35% on funds | £7.50 per month up to £25,000 or 0.35% with regular savings plan. | Free | £7.50 | Free funds £1.50 shares, trusts ETFs | £1.50 | More details |
| Freetrade* No investment funds | Basic account free, Standard with Isa £5.99, Plus £11.99 | Stocks, investment trusts and ETFs. | No funds | Free | n/a | n/a | More details |
| Hargreaves Lansdown* | 0.45% | Capped at £45 for shares, trusts, ETFs | Free | £11.95 | Free | Free | More details |
| Interactive Investor* | £4.99 per month under £50k, £11.99 above, £10 extra for Sipp | Free trade worth £3.99 per month (does not apply to £4.99 plan) | £3.99 | £3.99 | Free | £0.99 | More details |
| iWeb | Free | £5 | £5 | n/a | 2%, max £5 | More details | |
| Trading 212* | Free | Stocks, investment trusts and ETFs. | Not available | Free | n/a | Free | More details |
| Vanguard Only Vanguard’s own products | 0.15% | Only Vanguard funds | Free | Free only Vanguard ETFs | Free | n/a | More details |
| (Source: ThisisMoney.co.uk Jan 2025. Admin % charge may be levied monthly or quarterly | |||||||
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
