Over the past year, investors would have been better off putting their money in cash ISAs rather than stocks & shares ISAs, according to data from Moneyfacts.
The average stocks & shares ISA fund experienced a loss of 3.3% between February 2022 and February 2023, down from a 6.9% gain made in the same period the previous year.
Conversely, the average cash ISA returned 0.5% between February 2021 and 2022, but this jumped to 1.7% last year.
Rachel Springall, finance expert at Moneyfacts, said: “Stocks & shares ISAs suffered an overall loss over the past 12 months, with most primary fund sectors returning a loss.
“This should not be much of a shock considering the significant volatility felt across the markets over the past year, but it does emphasise the importance of keeping track of investments and ongoing fund performance. Cash ISAs have rebounded in comparison, thanks to competition and consecutive base rate rises.”
It is good news for most ISA owners. Indeed, two-thirds of accounts are cash ISAs, although this number was lower last year. The number of cash ISAs subscribed to decreased by 1.6 million between 2020 and 2021 compared with the previous year, according to data from HMRC.
Springall said: “Cash ISAs are traditionally a more popular choice among consumers, but some investors may well be reconsidering their attitude to risk in hopes of growing their pot over the longer term.”
Indeed, as of June 2022, while there are more cash ISAs in existence, more money is saved in stocks & shares ISAs (58% of the total versus 42% for cash).
Also available are lifetime ISAs, which can be used to either buy a house or save for retirement, and the help-to-buy ISA, which can only be used for a house deposit.
“The right ISA for any saver will come down to their individual needs and those considering stocks and shares must keep in mind that past performance is never guaranteed to be reflected in future returns, so it’s vital investors are comfortable with their level of risk,” Springall said.
There may be room for different types, but those wanting to look at cash ISAs as their main source of savings should compare for the best rates.
At present, the best fixed rate ISA is from Leeds Building Society. The three-year bond pays 4.05% and can be opened in branch, online or by post.
For those that require immediate access to their cash, Shawbrook offers an easy access account paying 3.01%, which can be opened online.
These rates are slightly worse than the cash rates available outside of an ISA, however, and it means that cash ISAs may not be right for everyone.
Speaking on The Martin Lewis Money Show Live in January, Martin Lewis said there were two questions to ask to discover whether a cash ISA is needed.
The first is whether you earn enough from savings above the personal savings allowance – £1,000 per year for basic-rate taxpayers, £500 for higher-rate payers and nothing for additional-rate payers.
The second is can you earn more elsewhere. At present the answer is yes, with the top easy access account from Chip paying 3.15% and the best three-year bond paying 4.35% from Tandem Bank.