How do I get the best cash return on a £50k savings pot? Well, there’s plenty to learn about the subject – and plenty of advisors who are interested in picking up big fees – so I can understand anyone who feels intimidated. But one of the most lucrative and simple ways of earning a return from a sum like £50k is to put the money in an ISA like a Cash ISA or a Stocks and Shares ISA.
ISAs (Individual Savings Accounts) are brilliant tax-advantaged vehicles that any UK saver should consider. These accounts can be opened with just a simple application online and yet can provide lifelong tax relief. The deposit limit is generous too, up to £20k each year.
Honestly, an ISA might really be the world’s best tax shelter.
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Types of ISAs
The Cash ISA is the simpler one, at least on the surface, because the rate of return is tied to the Bank of England’s interest rates. With rate now at 5.25%, a Cash ISA should return around the same in interest each year.
A word of warning however: many banks offer much less than this. The technical term is Net Interest Margin which is the margin between the rate a bank borrows at (now 5.25%) and the lower percentage it offers consumers. The big banks are the worst for this as they can attract business off name alone. NatWest, for example, offers a miserly 1.75% right now, so it’s worth shopping around.
With a Stocks and Shares ISA, I earn cash returns from the stock market. By investing in companies, I can aim for a far higher rate of return than a Cash ISA, even during times of low or zero interest rates. However, choosing companies to invest in poses a challenge.
After all, some companies go the way of Thomas Cook. Some companies go the way of Apple.
Creating wealth
If I wanted to make some guaranteed money over the next year then the Cash ISA is the obvious move. I could lock in a pleasing 5% return in a savings account.
Whereas an investment in a Stocks and Shares ISA could go up, down, or sideways. The FTSE 100, for example, gained 14% in one year in the last decade and lost 12% in another.
Volatility like this is to be expected and means I can’t rely on anything in a single year. But investing is not for those looking at the next year or two, it’s about creating wealth over time.
As billionaire investor Warren Buffett has said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
For those looking towards the long term, here’s the data from a MoneyFarm study that examined the returns of a Cash ISA and a Stocks and Shares ISA from 2010 to 2020.
| Cash ISA | Stocks and Shares ISA (Global Equities) | |
| Total Return | 12.74% | 224.98% |
| Yearly Return | 1.21% | 12.51% |
| Real Terms Return | -4.12% | 7.53% |
A Cash ISA lost money over the period whereas a Stock and Shares ISA grew money well above inflation.
If I extend that 7.53% return over 30 years then it would turn my £50k into £441,427 – inflation-adjusted as well. That sounds good to me.
