Cash ISA vs stocks – which is best for retirement? | will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by will always be from Be Scamsmart.

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Published: 16/03/2017

How are you planning on funding your retirement? If you haven't yet thought about it, now's the time to start – it's never too early to begin planning, and if you're approaching retirement age, it's even more important to get the ball rolling. However, even those who've started planning may not be fully considering all their options, as research from MetLife shows.

Over-reliance on cash

The report found that 34% of retirement savers questioned are planning to rely on ISAs for the bulk of their retirement income, but there are concerns about a lack of choice in the market. After all, around two-thirds (66%) only save into cash ISAs, yet just 10% say they're happy with the rate they receive.

Unsurprisingly given the state of the market at present, 55% are dissatisfied with the rates of offer – our data shows that the average cash ISA rate stands at just 0.84%, with the very best available clocking in at only 1.75% – which shows that more thought should perhaps be given to this form of long-term saving, along with better ways to boost returns.

Stocks & shares ISAs, then, could perhaps offer a solution. They offer the potential for far better returns, particularly for those willing to take a long-term view, yet with few savers currently opting for this savings vehicle – additional research from Santander
shows that just 12% of respondents invest in a stocks & shares ISA – there's a clear need for greater awareness.

So, to illustrate the potential of stocks & shares for retirement saving, we've taken a look at the returns that could be achieved in a cash ISA compared with a stocks & shares variety, and it may surprise you.

Cash vs. stocks

We've gone back all the way to 2007 to look at the returns that could have been achieved if you'd invested the full ISA allowance into an average cash ISA at the start of each tax year. In doing so, you'd have invested £77,520 over the last decade, and would now have an ISA pot of £83,272.57 – a gain of 7.42%.

The average cash ISA rate over that period comes out at 2.57%, so the fact that you'd have achieved a far higher return serves to demonstrate the power of compounding – investing the maximum ISA allowance each year and leaving it untouched means you'll earn interest on the initial deposits as well as on subsequent gains, which could lead to a far higher pot overall.

However, the returns that could have been achieved with a stocks & shares ISA are even more impressive. Investing the full ISA allowance into a typical account every year since April 2007 would mean you'd have deposited £103,560, yet would now have a pot worth £136,005 – a return of an impressive 31.33%, compared with the cash uplift of 7.42%.

The annual compound return for stocks and shares ISAs since that time is 5.91%, again far higher than the average cash ISA rate of 2.57% over the same period, so as you can see, the benefits of investing rather than saving are clear.

It's worth noting that the investment allowance for stocks & shares ISAs was far higher than for cash varieties up until July 2014, when the two came into line, which explains the higher overall deposit of stocks & shares. However, the fact that the returns are far superior to those that could be achieved with cash is still notable, and with average cash ISA rates still paling in comparison to typical stocks & shares returns, there's no reason to think that the trend will change.

If anything, the fact that the ISA allowance is rising to £20,000 in April could only add to the difference. Of course, past performance is no guarantee of future returns, and stocks & shares ISAs come with far higher risk than their cash-based counterparts, but if you're looking to save for retirement, stocks & shares could be worth considering.

What next?

Find out more about stocks & shares ISAs, including their investment risks, to see if you'd consider using them for retirement saving

Want the security of cash? Make sure you're getting the best rates – check out our cash ISA Best Buys


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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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