Cash ISA devotees miss out on £41,000 compared to stocks and shares savers

Savers who held their money in cash ISAs over the last two decades have missed out on up to £41,000 in returns compared to those who invested in the stock market, new research suggests.

Returns from the FTSE All-Share Index were double those of cash ISAs over the last 20 years, says Scottish Friendly. Picture: Daniel Leal-Olivas

Low interest rates mean that cash ISA (individual savings account) holders who have maxed out their allowance each year since 1999 – when the savings vehicle was introduced – would now have an average sum of £153,191, according to a report by Scottish Friendly and the Centre for Economics and Business Research.

However, the study found that those who invested the same amount in the FTSE All-Share index through a stocks and shares ISA would have accrued a total of £194,665 over the same period.

The FTSE All-Share, which comprises more than 600 companies listed on the London Stock Exchange, has returned an average of 6.3 per cent per year since 1999, or 2.9 per cent after adjusting for account inflation and average investment fees, said the study.

This represents more than double the 1.3 per cent average annual return of cash ISAs, after inflation, as the Bank of England has kept interest rates low since the financial crisis.

A UK-wide survey of 4,000 people found that savers were nearly three times as likely to contribute regularly to a cash ISA than a stocks and shares equivalent.

Of the 65 per cent of respondents who have never owned a stocks and shares ISA, 25 per cent said this was because they feared losing money while 26 per cent said they do not have enough money to invest.

Scottish Friendly’s analysis of HMRC data found that a record 12.2 million people opened a cash ISA in the financial year 2008/09, while three million launched stocks and shares equivalents. These figures fell to 7.8 million cash and 2.8 million stocks and shares accounts last year.

Kevin Brown, savings specialist at Scottish Friendly, said: “The UK has a seemingly unbreakable attachment to the cash ISA. But the figures are clear – over the past 20 years savers who put their money into the stock market instead could have been thousands of pounds better off.

“Cash ISAs clearly have a place, but history shows us that the best returns over the years have been achieved by those who have put their money into the stock market.

“And that is unlikely to change while interest rates are near record lows. But of course, none of us have a crystal ball, so just because something has performed well in the past doesn’t mean it will perform well in the future.”