Shares deliver 40% higher returns than cash to ISA investors since launch

ISA savers who have contributed £3,000 a year since the tax-efficient plans were launched in April 1999 would have been nearly 40% better off if they had chosen a UK shares fund rather than cash, says Fidelity International.

Fidelity, the UK’s largest manager of Peps and ISAs, calculates that the average pot of money accumulated by a cash saver setting aside £3,000 a year – the maximum amount permitted by the rules – would today be worth nearly £26,000.

The same contributions invested in an ISA that tracks the performance of the FTSE All Share Index, the premier benchmark of the UK stock market, would have a pot of money worth £36,000 – 39% more than the cash saver.

Nonetheless, nearly a third of savers polled in Fidelity’s annual Investor Watch survey said they would use this year’s ISA allowance for cash, while almost as many (29%) are undecided.

Changes in the rules, due to be implemented in 2008, will allow ISA savers to transfer legacy cash ISAs to equity or bond funds. Fidelity’s survey indicates that 55% of savers may take advantage of this new freedom to invest some or all of their cash holdings in mutual funds.

Richard Wastcoat, UK Managing Director of Fidelity International, said:“The benefit of investing in the stock market over cash for the long term is evident in our analysis. For many people who started investing in cash before moving to equity investment as their savings pots increased, they will shortly have the opportunity to realign their portfolios without losing their tax-efficient wrapper. It is encouraging to see that the public are responding to the Government’s long term support of the ISA, with so many saying they will roll over legacy cash ISAs to equities in 2008 when the new legislation comes in.”