Cash ISA interest rates have plunged this year. In what has been a terrible time for savers generally, the best flexible Cash ISA interest rate on the market has fallen from around 1.3% at the beginning of the year, to 0.9% today.
At this rate of return, it would take 80 years to double your money. With that being the case, FTSE 100 stocks may present a better option for investors who want to get rich and retire early.
While these companies may not offer the same kind of protection as a Cash ISA, blue-chip stocks may make up for this with significantly higher returns.
Time to dump the Cash ISA?
Over the past three-and-a-half decades, FTSE 100 stocks have produced an average annual return for investors of 9%. Over the same time frame, the average yield on Cash ISAs has plunged.
Still, a Cash ISA does have its advantages. For example, investors can be sure that when they deposit their hard-earned cash, its value won’t drop overnight. This can happen with blue-chip stocks.
But that doesn’t mean cash is entirely safe. Indeed, the biggest threat to savers’ money is inflation. This can eat away at the purchasing power of your money. This means that even though the value of savers’ cash might remain the same, it will buy less in stores. Technically, interest received on cash should stop this from happening. But, for the past few years, that hasn’t been the case.
With interest rates at record low levels today, it doesn’t look as if this trend is going to end anytime soon. On the other hand, stocks have proven themselves to be an excellent hedge against inflation over the long run. That’s why FTSE 100 stocks may be the better investment over a Cash ISA.
FTSE 100 returns
With an average annual return of 9%, FTSE 100 stocks have far outperformed cash over the past 35 years. During this time, the market has seen some significant volatility. On three occasions, the index has fallen more than 50%. Still, on every occasion, it’s recovered its losses and gone on to reach a new high.
As such, while a Cash ISA might look like the better bet right now, over the long run, the FTSE 100 could be the better buy.
The numbers present a good idea of the sort of returns investors can expect. Over the past 35 years, £100 invested every month in the FTSE 100 would be worth £300k today. The same monthly investment in cash would be worth around £60k.
Therefore, buying a basket of blue-chip stocks, or owning the FTSE 100 as a whole, may be the better option than opening a Cash ISA. Investors with a long-term outlook should look past near-term uncertainty in the market and focus on its longer wealth-creating abilities.
