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Cash ISA devotees up to £41k out of pocket since ISAs were introduced in 1999

  • A decade of low rates means cash ISA savers who maxed out their ISA allowances every year have earned on average £41,474 less than those who invested in the stock market
  • Since 1999, investors in stocks and shares ISAs received annual returns of 2.9% after inflation and fees - more than twice the 1.3% achieved by cash ISA savers
  • Despite potential for greater returns on the stock market, 65% of savers have never held a stocks and shares ISA

Cash ISA devotees have missed out on up to £41,474 in potential returns each since the tax-efficient* savings accounts were first launched 20 years ago, new research from Scottish Friendly reveals.

Fresh data shows cash ISA holders who maxed out their annual ISA allowance every year since 1999 would be sitting on an average of £153,191 now.

But those who instead opted to invest their money in the FTSE All-Share index through a stocks and shares ISA with average annual charges of 1.4% would have accrued a total of £194,665 – some £41,474 more.

Since April 1999, the FTSE All-Share, which is made up of more than 600 companies listed on the London Stock Exchange, has returned on average 6.3% a year, or 2.9% when you take into account inflation and average investment fees.

That is more than double the 1.3% average annual return of cash ISAs, after inflation, over the same 20-year period. This is because the rates plummeted when the Bank of England slashed interest rates during the financial crisis – and have stayed low ever since.

Despite the potential for higher returns on the stock market, cash ISAs remain the more popular option among savers, although the number of people opening these accounts has fallen dramatically in recent years.

In the 2008/09 financial year, a record 12.2 million people opened a cash ISA, compared to 3 million who in that same year opened a stocks and shares ISA, according to Scottish Friendly’s analysis of HMRC data.

However, just 7.8 million opened a cash ISA in the 17/18 financial year – the lowest level since 2002. In the same tax year, 2.8 million people opened a stocks and shares ISA.

A survey of 4,000 people carried out on behalf of Scottish Friendly found savers were nearly three times as likely to contribute regularly to a cash ISA than a stocks and shares equivalent.

More than a fifth (22%) of respondents say they add to a cash ISA on a monthly basis, compared to just 8% of those who contribute monthly to a stocks and shares ISA.

The research reveals that nearly two-thirds (65%) of people have never owned a stocks and shares ISA.

Among those who do not have a stocks and shares ISA, a quarter (25%) say that a fear of losing money is the main factor while 26% say they do not have enough money to invest.

Kevin Brown, Saving Specialist at Scottish Friendly, said:

When it comes to saving, 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. That extra cash could, for example, allow you to retire earlier, help a loved one onto the housing ladder or even to fund a holiday of a lifetime.

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.

* Tax treatment depends on individual circumstances which can change in the future.

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