Savers rushing to use their annual ISA allowance before the end of the tax year are weighing a familiar dilemma: remain in cash for certainty or accept market risk in pursuit of stronger returns. Fresh figures suggest the performance gap between the two has widened again.
Data published by Moneyfactscompare.co.uk indicates that the average stocks and shares ISA has significantly outperformed the average cash ISA over the past 12 months. The figures arrive as the Government prepares changes to cash ISA limits from April 2027, adding another layer of complexity for long-term savers.
Investment ISAs Extend Performance Lead Over Cash
The latest numbers mark the third consecutive year in which investment ISAs have outperformed their cash counterparts. According to Moneyfactscompare.co.uk, average stocks and shares ISA growth reached 11.22% between February 2025 and February 2026. Over the same period, cash ISAs delivered an average rate of 3.48%, down from 3.80% the previous year.
Performance over a five-year period highlights the volatility inherent in markets. Investment ISA returns fell by 3.27% between February 2022 and February 2023, before recovering to 2.80% the following year and then moving into double-digit growth. Cash ISA rates, by contrast, have risen steadily from 0.51% in 2021–2022 to recent highs above 3%, though they remain well below equity market averages.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said the recent figures “should be a wake-up call” for savers reluctant to invest, while cautioning against making long-term decisions based solely on short-term gains. She noted that commodities played a significant role in fund performance, with the Commodities and Natural Resources sector returning 28.83% over the past year.
Other regions experienced notable reversals. According to the same data, the Latin America sector posted returns of 38.24% after recording a loss of 11.15% the previous year, a shift linked to high commodity prices, political developments and currency movements.
Even so, research from Aviva suggests many households remain hesitant. The insurer found that 55% of consumers hold no investments, and 39% believe investing is too risky. That caution continues to underpin demand for cash products despite comparatively modest returns.
Tax Changes and Policy Shifts Reshape the Savings Landscape
Tax policy is another factor influencing behavior. Fiscal drag has drawn more earners into higher tax bands, reducing the Personal Savings Allowance for some from £1,000 to £500 in interest each year. According to Ms Springall, this shift makes ISAs an attractive shelter for savers seeking to protect returns from income tax.
From 6 April 2027, the annual cash ISA limit will fall to £12,000, while those aged 65 and over will retain a £20,000 allowance. The policy aims to encourage greater participation in investment markets, though it may prompt some savers to reassess how they allocate their annual ISA contributions.
The Government is also planning a Retail Investment Campaign by April 2026 to promote wider engagement with investing. Industry observers suggest that improving financial confidence, rather than simply adjusting limits, will be key to changing long-established habits.
For now, the contrast is clear. Cash ISAs continue to appeal to those prioritizing stability, particularly in uncertain times. Stocks and shares ISAs, on recent evidence, have delivered stronger growth, though with sharper fluctuations along the way. As the tax year draws to a close, the choice remains finely balanced between security and potential return.
