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Why I’ll forget the Cash ISA and buy FTSE 100 shares after September’s sell-off

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Conditions remain extremely tough for UK savers to make a decent return on their money. Many Brits have been able to hoard plenty of cash since the Covid-19 outbreak damaged their spending habits. They’ve amassed an eye-dropping £230bn according to the Bank of England. Yet the opportunity to really make that money work for them with traditional savings products remains pretty dire.

Let’s take the Cash ISA for example. Even the best-paying instant-access product on the market (from Newbury Building Society) pays no more than 1% right now. Based on this interest rate someone who saves £250 a month will only make £16.23 in interest over the space of a year for a total investment of £3,000.

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Why I’m buying UK shares today

I hold cash in a Cash ISA myself. But I only use it to hold money temporarily and to store cash I might need for a rainy day. I use the remainder of my investing money to buy UK shares in a Stocks and Shares ISA. This is because the average annual return investors can expect to make sits at a meaty 8%.

And I think now’s a particularly good time to go shopping for stocks. There are plenty of glorious companies trading at rock-bottom prices following September’s mini sell-off on UK share markets. Coca-Cola HBC (LSE: CCH) for example, is a FTSE 100 share that’s lost 5% of its value so far this month. That leaves the soft drinks bottler trading on a forward price-to-earnings growth (PEG) ratio of just 0.7. Any reading below 1 suggests a stock could be undervalued.

macro shot of computer monitor with FTSE 100 stock market data in trading application

I own Coca-Cola HBC because it’s a great play on some of the world’s best-loved consumer brands. As well as bottling various editions of the Coke brand it also packages other evergreen drinks like Fanta, Monster Energy, and Sprite. And I think it has a great future as The Coca-Cola Company moves into fast-growing areas of the market like energy drinks and sugar-free products. There is, however, always a danger that Coca-Cola could bring the bottling of its products in-house.

More FTSE 100 bargains

There are many more FTSE 100 shares I think offer terrific value following September’s sell-off. Mondi, for example, has fallen 6% in value so far this month. The packaging manufacturer is facing a sharp rise in paper costs as supply chain issues worsen. But I’m thinking of buying it because I think the e-commerce explosion could help it deliver fatty shareholder profits over the longer term.

I may also snap up more shares of Prudential (another FTSE 100 stock I own) too as, despite the incredibly competitive arena in which it operates, it’s a great play on fast-growing Asian emerging markets. This life insurer has dropped 7% in the month to date. I could also buy Rio Tinto, which has dropped 10% in September as concerns over economic conditions in commodities-hungry China have grown. I think demand for Rio Tinto’s metals (and in particular copper) could soar as investment in green technology rises.

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Royston Wild owns shares of Coca-Cola HBC and Prudential. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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