Is cash really 'king'?
You may have read the recent speculation surrounding cash ISA limits, spurred by Rachel Reeves’ recent comment: “At the moment, there is a £20,000 limit on what you can put into either cash or equities, but we want to get that balance right.”
Written by Jonathan Wade
Director
Ignoring the politics, the debate did prompt us to look into relative returns of cash ISAs versus investment ISAs. We went back to when ISAs launched (April 1999) and looked at the average 1-year fix rate available each year.
If you’d put the maximum you could into a cash ISA at the start of every tax year since 1999, you’d have invested £261,520. And if you’d kept rolling up the interest, you’d have turned your original investment into £301,924. That’s £40k of tax free gains! Nice!
But of course, it’s also about what ELSE you could have won…
Let’s take the FTSE All-Share index – not the strongest index over this period but one that everyone knows – and use the same like-for-like tax-year returns.
If you’d put the same £261,520 into a stocks and shares ISA on the first day of the new tax year, and simply held a FTSE All-Share tracker, you’d have an investment worth £491,516 . That’s £229,995 of tax-free gains
Source: FactSet/7IM. Past performance is not indicative of future returns.
Of course, if you’d pushed the boat out, and maximised your Stocks and Shares contributions pre-2013, you’d have put £326,560 in and have £708,837 today. £65k more invested, and £150k more return!
Cash ISA controversy? No, for many long term investors, there’s a better place to be…
*Data
Source: HMRC/Moneyfacts/NS&I/7IM. Past performance is not indicative of future returns.
Tax year 2024 – 2025 returns for FTSE All-Share is to 25/02/2025.
Article based on source-information by 7IM investment management
Investment markets can be volatile and values will go down as well as up.