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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 now 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.

Cash ISA openings are falling dramatically

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.

UK investors STILL more likely to open a cash 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, savings 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.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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