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Stocks & shares ISAs see strongest returns in 7yrs

Stocks & shares ISAs see strongest returns in 7yrs

Category: ISAs
22/03/2017

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Cash savings rates aren't exactly setting the world on fire at the moment – only one account can provide an inflation-beating return, after all – so despite recent signs of life
in some sectors, many savers are looking for alternative ways to boost their returns. For some, stocks & shares ISAs could be a great option, particularly given that they're currently delivering the strongest performance in years.

Best year since 2009/10

Our latest research shows that the average stocks & shares ISA fund has grown by an impressive 15.8% during the 2016/17 tax year so far, the highest return seen since 2009/10, when the average return clocked in at 34.5%. By contrast, the average interest rate on cash ISAs (both fixed and variable rate) stands at just 1.01% over the same period, and even the top long-term ISA currently available will only pay 1.75%.

This is compared with the best performing stocks & shares ISA fund (JPM Natural Resources) which has seen growth of 55.5% during the tax year so far, with just 33 out of the 979 ISA funds surveyed (3%) having failed to see an uptick over the same period. Indeed, the average stocks & shares ISA has delivered positive growth in 11 of the 18 tax years since the introduction of ISAs in 1999, so it could clearly pay to go down this route.

This all shows the extent to which stocks & shares ISA investors are being rewarded for their investment choice, and as the 2016/17 tax year draws to a close and a new one approaches, now could be a great time to see if this kind of investment is worth considering.

Time to switch from cash?

"Despite considerable economic and political uncertainty, the 2016/17 tax year has been a very productive period for most stocks and shares ISA funds," said Richard Eagling, head of Pensions and Investments at Moneyfacts, "yet the dominance of cash ISAs over stocks & shares ISAs in terms of popularity means that many individuals will not have benefitted.

"ISAs have proved to be a phenomenal success since they were introduced almost 18 years ago, but whether individuals are making the right choices is questionable. Cash ISAs remain the default choice for many investors despite low interest rates. Those reluctant to consider the merits of stocks & shares ISAs may think again if they can see the higher returns that they are potentially missing out on."

A return of 15.8% with a stocks & shares ISA or 1.01% with cash? It seems like a no-brainer, but it's important to balance the potential for better returns with the greater risks involved, as with stocks & shares, there's no guarantee. Your money is actively invested in the stock market and thereby at the mercy of market fluctuations, so there's the chance you may end up with less than you put in.

This is why it's often best to view stocks & shares as a long-term investment of at least five years, thereby giving you enough time to weather the ups and downs of the market and, ideally, generate a decent return overall.

Because it's a long-term commitment, this kind of investment could be even more worthwhile for those who are saving for retirement or who have some other long-term goal in mind, having the potential to leave you with a healthy savings pot a few years or even decades down the line – particularly if you make the most of your ISA allowance each year.

Get involved

It can't be denied that the potential returns of stocks & shares ISAs are appealing, but much like with a cash ISA, you need to make sure you're getting the best option possible. That's why you should always compare ISA funds before you make your decision, and don't be afraid to seek professional advice to make your money go as far as possible.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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