Even those with just a passing interest in personal finance will likely have some of their money held in ISAs.
ISAs are incredibly popular, and a report in Moneyfacts found that a record £14 billion was deposited into them in April 2025 alone.
These tax-efficient accounts allow you to save and invest without paying Income Tax, Capital Gains Tax (CGT), or Dividend Tax on your returns.
For the 2025/26 tax year, the annual limit is £20,000 across all ISAs. Yet government data shows that UK savers remain heavily weighted towards Cash ISAs, meaning many are potentially missing out on higher long-term returns available from Stocks and Shares ISAs.
There is even speculation that the chancellor may use the upcoming Autumn Budget to cap Cash ISA contributions, in a bid to drive more money into investments.
With this in mind, now could be the right time to review how you’re using your ISA allowance and whether your approach still works for your goals.
Read on to find out about how billions held in Cash ISAs could be missing out on market gains.
Cash ISAs are very popular, but many offer low interest rates compared to market returns
Cash ISAs provide guaranteed interest on your savings, while Stocks and Shares ISAs let you invest across a range of assets.
Both accounts are tax-efficient, but the key difference is that Cash ISAs deliver guaranteed returns, whereas Stocks and Shares ISAs come with the potential for both gains and losses.
Cash ISAs remain hugely popular. Research from Paragon shows that savers held around £417 billion in Cash ISAs at the end of May.
Moreover, a UK government report notes that around 29 million UK adults keep money in cash accounts with interest at around 1%. Indeed, the same report found that the UK has the lowest level of retail investing among the G7 countries.
By contrast, the average annual return from stocks and shares over the past decade has been about 9%. To put this into perspective, the report claims that if you invested £2,000 and achieved a 9% annual return, it could grow to around £12,000 over 20 years. The same £2,000 left in a cash account paying 1.5% would rise to only about £2,700, leaving you more than £9,000 worse off.
Research reported by MoneyAge found that if you had maxed out your Cash ISA allowance every year since ISAs were launched in 1999, you would have received an annual interest rate of 2.85%. Meanwhile, if you had invested the same money into FTSE 100 companies, you would have generated an average annual return of 4.4%.
This means that Cash ISA savers would have received £23,199 in interest, compared to £157,591 returns for investors – a difference of more than £134,000.
So, while Stocks and Shares ISAs don’t offer guaranteed returns, they have historically delivered far greater long-term growth than cash.
Stocks and Shares ISAs are typically more likely to keep pace with inflation
Cash ISA rates often struggle to keep up with inflation. This means that while your savings may grow in nominal terms, their real spending power can decline over time.
By contrast, investments have historically had a better chance of keeping pace with and often beating inflation, giving you a stronger opportunity to preserve and grow your wealth in real terms.
Data from This is Money shows that if you had put £10,000 into a Cash ISA when they first launched in 1999, your balance today would be just over £19,000, based on average returns and before adjusting for inflation. The same £10,000 invested in the FTSE All-World Index would now be worth more than £75,000.
After adjusting for inflation, the spending power of those cash savings would have dropped to under £5,000, while the investment would still be worth close to £65,000.
So, the money held in the cash account would have lost real-term value, while the investments would still have grown.
Cash ISAs can play a role in your plan, but you may want to rebalance to not miss out on market returns
While cash savings can be useful for short-term needs, investments typically deliver stronger growth over the long term, as you read above.
A Stocks and Shares ISA gives you the opportunity to achieve higher returns than the interest offered by a Cash ISA, while remaining tax efficient.
That said, cash can still play an important role in your portfolio, and can be particularly useful for an emergency fund or other short-term expenses where security and easy access matter most.
Because ISA withdrawals are tax-free, both Cash and Stocks and Shares ISAs can form part of an efficient financial plan. However, by investing more of your wealth rather than holding it in cash, you may be better positioned to achieve greater returns and reach your long-term goals more effectively.
A financial planner can help you assess your ISA holdings and rebalance them to ensure they are best set up to serve your financial security and goals.
Get in touch
Our team of independent financial advisers in Lewes is here to support you in developing a tax-efficient plan that maximises all your available allowances to support your long-term stability.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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