In her Spring Statement, the chancellor, Rachel Reeves, commented on the government’s interest in reforming ISAs to encourage more investment in the economy.
She claimed she intended to “get the balance right between cash and equities” by limiting Cash ISA contributions, aiming to encourage retail investing.
However, during her Mansion House speech in July, Reeves made no significant changes to ISA allowances. Still, she did state that changes remain on the table.
ISAs are incredibly popular in the UK, with Moneyfacts revealing that a record £14 billion was deposited into the accounts in April 2025. Yet, it might be unwise to rely too heavily on Cash ISAs compared to their Stocks and Shares counterparts.
Continue reading to learn about some of the facts and figures that could suggest why Stocks and Shares ISAs could be best for long-term growth.
UK individuals seem to prefer saving over investing
As a whole, Brits seem to have a proclivity for saving rather than investing.
A government report found that the UK has the lowest level of retail investing among the G7 countries, and a large portion of wealth remains in low-interest cash accounts. In fact, as many as 29 million adults across the UK have cash accounts offering around 1% interest.
When deciding to either save or invest your wealth, Cash or Stocks and Shares ISAs can be attractive options.
Simply put, Cash ISAs allow you to save your wealth and generate interest, much like a typical savings account. The difference is that any interest is entirely free from Income Tax.
Research by Paragon reveals that, as of May 2025, there is £417 billion in Cash ISAs, up from £378.7 billion in January.
Meanwhile, a Stocks and Shares ISA allows you to invest your wealth in a range of assets, and any returns are free from Income Tax, Capital Gains Tax (CGT), and Dividend Tax.
While cash can be helpful for short-term needs, stocks tend to deliver stronger long-term returns
Investing in a Stocks and Shares ISA could allow you to generate more significant returns when compared to relying on interest from a Cash ISA.
Research reported by MoneyAge confirms this. It found that if you had maxed out your Cash ISA allowance every year since 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, compared to £157,591 for investors – a difference of more than £134,000 in real-term wealth.
Of course, cash savings have their place and can be particularly useful for covering short-term needs, such as for an emergency fund.
Moreover, withdrawals are tax-free, which means they could form part of an efficient withdrawal strategy for your retirement income.
However, investing the majority of your wealth might mean you receive greater returns, allowing you to work more efficiently towards your long-term goals.
A Stocks and Shares ISA might be more likely to keep pace with inflation
As well as typically offering more competitive returns, a Stocks and Shares ISA could also help your wealth outpace inflation over the long term.
Data from This is Money shows the difference this can make.
If you had placed £10,000 into a Cash ISA when they first launched in 1999, your balance would now stand at just over £19,000, not accounting for inflation and using average cash return figures.
Meanwhile, if you had invested the same amount in the FTSE All-World Index, your investment would have grown to over £75,000.
Once adjusted for inflation, the spending power of your cash savings would have fallen to less than £5,000, while your investments would still be worth almost £65,000.
The Bank of England’s inflation calculator shows that £10,000 in 1999 would be worth £19,196 today.
This means that, over 26 years, prices have almost doubled, meaning your returns need to at least match this just to avoid having their real-term value eroded.
Cash ISA rates can sometimes lag behind inflation, particularly during periods of low interest.
Investments, on the other hand, have the potential to continue delivering returns that keep pace with, and often exceed, inflation over the long term, giving you a better chance of preserving your wealth in real terms.
Get in touch
A financial planner can help you decide when it’s appropriate to save in a Cash ISA, and when it might be best to invest through a Stocks and Shares ISA.
Email info@blueskyifas.co.uk or call us on 01189 876655 to find out more.
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 Financial Conduct Authority does not regulate tax planning.
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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.