Cash ISAs outperform stocks & shares ISAs

Average cash ISA returns beat the average stocks & shares ISA performance over the past two years.

With savings rates rising significantly in 2023, the average cash ISA offered a better return than the average stocks & shares ISA, Moneyfacts analysis reveals.

While the average cash ISA, including fixed and variable accounts, paid 3.73% between February 2023 and February 2024, the average stocks & shares ISA offered a smaller 2.80% growth.

However, both types of ISA performed better on average than in the previous year, when stocks and shares ISAs fell by 3.27% and cash ISAs paid just 1.71%.

Fluctuating returns

Cash ISAs haven’t always offered a better average return than stocks & shares ISAs. Between February 2021 and February 2022, the average stocks and shares ISA grew by 6.92%, compared to an average cash ISA rate of 0.51%.

“Traditionally, stocks & shares ISAs would be chosen by investors who are prepared to invest for better returns over the longer-term on the basis that performance might fluctuate over shorter timescales, but it is essential they regularly check the performance of their pot and seek advice if they need to review their risk profile,” commented Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Unlike cash ISAs, the performance of stocks and shares ISAs can vary significantly. It’s possible for your money to grow more in one of these accounts than in a standard cash ISA, but there’s always the risk that you could lose money.

For example, while the best-performing stocks & shares ISA fund sector between February 2023 and February 2024 offered a return of 34.14%, the worst-performing fund sector fell by 32.46%.

And it can be difficult to predict which funds are going to perform well, as sectors that return growth one year could fall in the next year.

“Indeed between 2022 and 2023, the Commodities and Natural Resources sector was the best performing (returning more than 24%), but over the past 12 months it fell by almost 13%,” Springall pointed out.

Choosing the right ISA

All ISAs have their own pros and cons, so only you can decide which type of account is right for your situation.

Stocks and shares ISAs have the potential to offer higher returns than cash ISAs, especially if you invest for the long-term. But, as we’ve seen, there is always a risk that your investments will fall in value.

Cash ISAs are likely to be more suitable if you’re not prepared to risk your money.

Easy access cash ISAs could be an option if you want to be able to dip into your savings but, if you’re willing to lock away your money for a set period, fixed cash ISAs often pay a higher rate. These accounts pay a fixed rate of interest, which means the return you could get on your money is guaranteed, unlike variable easy access accounts that could change the interest rate at short notice.

You can use our ISA charts to compare different ISAs and help you find the right account for you.