The Cash ISA remains massively popular and Britons hold a staggering total of £360bn in the tax-free savings vehicle.
While it’s good that people save, the government’s worried. It thinks we leave too much in cash, often earning very little interest at all. The Treasury wants us to invest more in the stock market instead. And it has a point.
While Brits typically put less into Stocks and Shares ISAs, they’re actually worth £511bn in total. Why? Because equities make our money work much harder.
Do stocks and shares beat cash?
Over the last decade, the average Cash ISA saver got a return of just 1.21% a year, according to financial advisory site Unbiased. By contrast, the average Stock and Shares ISA returned 9.64% a year. Cash is a handy safety net, but the real value of your deposits risks being eroded by inflation over time.
Equities are more volatile in the short term but if putting money aside for a long-term goal such as retirement, they’re streets ahead of cash.
In defence of the Cash ISA, that 1.21% figure is a little unfair. These days, it’s possible to get interest of around 4% from a best buy account. That would have turned £15,000 into £15,600 over the last 12 months.
However, over the same period, the FTSE 100 has grown by a far ore impressive 17.4%. Stocks on the index also pay dividends, and the average yield in that time has been 3.3%. This lifts the total return to 20.7%. That would have turned £15,800 into £18,829. Investing in UK shares would have given our investor £3,229 more than a best buy Cash ISA.
Stock returns are never guaranteed and for all we know, the FTSE 100 could fall over the year. But on the longer run, shares typically beat equities.
Why I think NatWest shares are worth considering
A popular way to tap into the stock market’s wealth-generating abilities is to buy UK stocks that offer potential share price growth and dividend income. Right now, one of my favourites is NatWest Group (LSE: NWG). I bought it in May and June, and I’m tempted to buy it again. Why? Because it’s done brilliantly of late but still looks cheap.
The NatWest share price is up 230% over the last five years, and 33% over 12 months. But that’s only the part of the story. Lately, it’s been paying dividend income of around 5% a year. Anyone who automatically reinvested those dividends will have turbo-charged their total return.
The dividends keep rising, and in 2026 analysts reckon NatWest will yield 5.17%. This may rise to a thunderous 6.17% in 2027.
Dividends are never guaranteed. Nor is share price growth. We don’t know what the next year will bring. The UK economy’s struggling, and this could lead to a rise in loan impairments and hit demand for mortgages. The government may slap a further windfall tax charge on banks.
But with a long-term view, I think NatWest shares are well worth considering today. Over the years, I’d expect them to deliver a far better return than a Cash ISA.
Should you invest £5,000 in NatWest Group Plc right now?
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Harvey Jones owns shares in NatWest Group
