Cash ISA savers have lost out on over £134k in real returns versus investors since 1999

Tuesday 8th July, London - UK savers maxing out their cash ISA allowance every year since ISAs launched would have lost out on more than £134K in real wealth creation versus those investing in UK shares, according to analysis from trading and investing platform IG.

The huge figure - almost enough to buy the average house in Sunderland or more than three brand-new Tesla Model 3s - starkly highlights the cost of prioritising cash over investing for the long term.

IG crunched the numbers ahead of UK Chancellor Rachel Reeves’ Mansion House speech on 15th July, where she is expected to reduce the cash ISA allowance to £4,000 per year. IG’s analysis questions whether this move will be enough.

The study examined total returns for someone maxing out their annual tax-free cash ISA allowance since 1999, adjusted for inflation, then compared them to returns if the same contributions had instead been invested in the FTSE 100 through a stocks and shares ISA. Although the total contributions were the same - £252,460 over 26 years - the gap in outcomes is significant.

Over this period, the average annual cash interest rate was 2.85%, while investors who put their full allowance into the FTSE 100, reinvesting dividends, achieved an average annual return of 4.4%.

Cash ISA savers would have seen a total return of 107.8% (pre inflation), with their final balance reaching £524,692. However, accounting for inflation, this represents £275,659 in purchasing power today, amounting to just £23,199 in real wealth creation, and a total real return over the period of 9.2%.

Investors putting their money into the FTSE 100 meanwhile would have seen a total return of 206.3% (pre inflation), with their final balance reaching £773,362. Accounting for inflation, this equates to £410,051 in today’s purchasing power - £157,591 in real wealth creation and a total real return of 62.4%.

While most savers don’t max out their ISA allowance each year - IG’s analysis and the difference in real returns as a percentage holds true for those making smaller contributions each year.

IG recently launched its ‘Save our stock market’ campaign, calling on the government to take urgent action to boost the UK’s dwindling stock market and get people investing in UK companies. One of its key policy recommendations is for the Chancellor to scrap the cash ISA to encourage more UK savers to engage with investing.

Michael Healy, UK Managing Director at IG said: “Only by building a true culture of investing will UK households have the opportunity to grow real, long-term wealth. Many savers will be reluctant to take their first step, but with a long-term view, investing in the stock market should be a no-brainer.

“Since the launch of the cash ISA in 1999, the FTSE 100 has delivered negative returns in only seven years - and other global markets have performed even more strongly. In contrast, between 2008 and 2020, average cash ISA rates hovered around just 1.5%, well below inflation, which averaged 2.6%. Volatility may be uncomfortable in the short term, but the long-term erosion of purchasing power is a quieter risk that deserves a louder warning.

“There’s speculation the Chancellor may cut the tax-free allowance for cash ISAs to encourage more investing. But the time for gentle nudges is over - we need a bold reset to get Britain’s money moving. Fully scrapping the cash ISA is the only way to break the cycle and ensure savers are properly incentivised to think beyond cash and start building genuine long-term wealth.”

To mark the SOS campaign, IG is offering all new customers a free share bundle of British stocks if they open a new trading account before the 16th August.

You can read more about IG’s SOS campaign and free UK share offer here.

Investing puts your capital at risk.

The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.

For any press enquiries, please contact: 

Teamspirit PR: 07919 228097 or IG@teamspirit.co.uk

About the campaign - Save our stock market

The campaign aims to address the ongoing decline of the UK stock market and the country’s strong preference for cash savings over investing. We are calling on policymakers to take action to revive the UK stock market and build a stronger retail investing culture. You can learn more about the campaign, our free UK share offer for new customers and our proposals to policymakers on our SOS landing page.

Methodology for cash ISA vs investing returns

IG calculated this by analysing the total real returns from the FTSE 100 - estimated by adding an average dividend yield of 3% (3.4% since 2000) to the FTSE 100 price returns - and from the average savings account from January 1st 1999 to December 31st 2024 (ISAs introduced in 1999). This FTSE 100 calculation assumed that all dividends were reinvested. By real returns, we mean the returns which were delivered after the impact of inflation. For cash accounts, the actual figure for real returns was 9.2% across the 26-year period, averaging out at 0.34% per year. For the FTSE 100, the real return over the period was 62.4%, averaging out at 1.88% per year.

The cash ISA rates mentioned in the comments come from the Bank of England’s Monthly interest rate of UK monetary financial institutions (excl. Central Bank) sterling cash ISA deposits excluding unconditional bonuses from households.

Nominal Returns (What You See in Your Account)

Measure	Cash ISA	Stocks ISA	Stocks Advantage
Total Invested	£252,460	£252,460	Same
Final Value	£524,692	£773,362	£248,670 more
Total Return	107.8%	206.3%	+98.5%
Annual Return	2.85%	4.40%	+1.55% per year
Money Multiple	2.1×	3.1×	47% more wealth

 

Real Returns (After Inflation - What You Can Actually Buy)

Measure	Cash ISA	Stocks ISA	Stocks Advantage
Real Final Value	£275,659	£410,051	£134,392 more
Real Total Return	9.2%	62.4%	+53.2%
Real Annual Return	0.34%	1.88%	+1.54% per year
Real Wealth Created	£23,199	£157,591	£134,392 more

 

About the free UK share offer

All information and T&Cs on the free UK share can be found here.

About IG Group

IG Group (LSEG:IGG) provides online trading platforms and educational resources to empower ambitious clients around the globe. Headquartered in the UK, IG Group is a FTSE 250 company that offers clients access to c.19,000 financial markets worldwide
 
All trading involves risk.

The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.

Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd.  

IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA.  IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.