Attachment to cash costs investors dear as stocks and shares ISAs continue to outperform

The warning comes after recently updated figures from HMRC¹ show that at the end of the 2016/17 tax year the value of adult ISA holdings stood at £585 billion – a 10% increase compared to the value at the end of 2015-16. However, this was driven by a 20% increase in the market value of funds held in stocks and shares. ISA holdings are split almost equally between cash ISAs (46%) and stocks and shares ISAs (54%).

Royal London analysis shows that not only are cash returns lagging behind those to be found in the stock market over the last year but over the long term cash returns do not keep pace with inflation and erode purchasing power over time. Royal London figures show that holders of cash ISAs have experienced an 11.5% cut in terms of what they can purchase with their money since 2006/07.

On the other hand those investing an equivalent amount in a simple multi asset fund would have increased the value of their money by almost 48% over the same period. Multi asset funds invest in a wide range of different asset classes. This approach has benefits in that if one asset class performs less well then this can be offset by better performance in the other asset classes.

Helen Morrissey, Personal Finance Specialist at Royal London said: 

"It is understandable that people will want to keep money in cash ISAs where they can access it easily but they need to be aware that returns from cash are not currently keeping up with inflation and could erode purchasing power over the long term. If people are looking to generate decent returns over the long term they will need to look at investing in a wider range of asset classes. Our analysis shows that cash ISA investors have missed out on a whopping £181m in returns compared to multi asset investors since 2006/07."

Gains over Cash ISA (£million) £181,270

Source: Royal London, DataStream, HMRC Individual Savings Account Statistics. Multi Asset fund returns are simulated based on a fund invested 50% into global stocks, 50% into bonds with 1% fee p.a. Numbers in £millions.

Past performance is not a guide to the future.

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