This news shows why stocks and shares can make you MUCH richer than a cash ISA ever will
It can’t be stressed enough just how destructive the decision to simply plant your hard-earned money in a low-yielding cash account can be. And things threaten to get even worse.
Their fans would argue that they are happy to swallow lower returns for the peace of mind that knowing the value of the investment isn’t going to fall over time. It’s not difficult to drive a truck through this line of argument, though. Sure, the numbers on your statement may not fall, but in reality the value of your savings is falling every day that it’s locked up.
Let’s look at the best-paying, instant access cash ISA on the market. Virgin Money currently offers the highest interest rate with its 1.45% via its Double Take E-ISA, leaving your savings at the mercy of an environment of rising inflation (the UK consumer price index gauge stood at 2.3% in November, according to latest Office for National Statistics data).
Ouch!
The problem of the non-existent returns from cash ISAs is a big problem, but this pales into insignificance when you consider the lost returns that could have been generated by investing in assets like shares instead.
A recent report from financial services provider Scottish Friendly, carried out in association with the Centre for Economics and Business Research, illustrated this point perfectly. It advised that, because of a blend of rising inflation and low interest rates in the aftermath of the June 2016 Brexit referendum, the value of cash deposits has slipped by up to 4% in real terms.
By comparison, those who had stashed their savings in a stocks and shares ISA tracking the FTSE All-Share have enjoyed a real return of 9%.
Want to get rich?
To put some meat on the bones, Scottish Friendly said that those who maxed out their full ISA allowance of £15,240 in September 2016 in a cash-based account would have seen their holdings rise £225 over the period to £15,465.
The research also showed that the impact of inflation during the past two years would have driven down the real value of that money by 4%, to £14,620.
What’s more, had investors parked their dough in the aforementioned FTSE All-Share-linked stocks and share ISA, their holdings would have risen by £2,344 over the 24 months to £17,584. Adjusting for the rising costs of living this still sits at a healthy £16,623, up 9%.
Scottish Friendly hit the nail on the head when it said that “while it’s a good idea to keep a healthy sum of money in an accessible cash account to cover emergencies and planned expenditure, more needs to be done to educate savers [that] the stock market offers potential for greater returns.”
Stock markets can often be volatile, as the investment specialist noted, but over the long-term, investors have the opportunity to ride out any volatility. They are one of the best ways of getting your money to work for you, in my opinion, and there is a galaxy of great shares out there to help you towards a fortune.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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