According to my research, the best Cash ISA interest rate on the market at the moment is just 1.46%. You can get a bit more if you’re willing to tie your money up for several years, but not by much. No Cash ISA on the market offers an interest rate of more than 2.1%, at the time of writing.
These minuscule interest rates are outrageous. Indeed, the current rate of inflation is 1.7%, which implies that for the most part, these Cash ISAs offer negative real interest rates (after adjusting for inflation).
Time to dump the Cash ISA
It’s for that reason that I’d avoid Cash ISAs all together and open a Stocks and Shares ISA instead. The good thing about the latter is you can invest your money wherever you want around the world. There’s also a virtually unlimited selection of assets you can choose to own. From infrastructure funds to corporate bond funds, single stocks and global equity indices, there are thousands of assets you can pick to buy.
The flexibility of Stocks and Shares ISA also means you don’t have to make do with whatever low rate of interest Cash ISA providers are offering. Instead, the world is your oyster.
Dividend stocks
Dividend stocks are a particularly attractive alternative. For example, Royal Dutch Shell is one of the largest and most trusted dividend stocks in the world. The company has maintained its payout since the end of the Second World War through thick and thin.
Today, this stock supports a dividend yield of 6.2%, three times more than even the most attractive Cash ISA on the market right now.
There are plenty of other FTSE 100 dividend stocks that offer inflation-beating yields as well and the index itself currently yields 4.5%. The great thing about buying the whole index is that you don’t have to worry about the performance of individual stocks. All you need to do is sit back and watch the money roll in.
Another plus point about Stocks and Shares ISAs is that you can invest outside the UK. So, if you’re worried about the impact a no-deal Brexit might have on the UK economy, it’s easy to diversify at the click of a button.
The Henderson International Income Trust is my favourite pick for international income. Nearly a third of the trust’s assets are currently invested in US stocks, with another third invested in European equities. The trust’s yield stands at 3.2%.
The bottom line
So, that’s why I would dump the Cash ISA today and move my money into a Stocks and Shares ISA. These tax wrappers provide much more flexibility and the potential for better profits over the long run.
Investing might seem like a lot of extra effort compared to leaving your money in cash, but as I’ve tried to show in the numbers above these investments should pay for themselves over the long term.
