I’m investing for the future in a Stocks and Shares ISA and that isn’t going to change despite the latest interest rate hike.
The Bank of England has hiked the bank rate seven times in a row since December, and it now stands at 2.25%. That is the highest level since November 2008, which means savers can finally get a halfway decent return from a Cash ISA.
I’m pleased for them. Savers have been poorly treated for far too long, and need a break. Yet I’m not putting any money in a Cash ISA myself. I still believe the Stocks and Shares ISA merits my full love and attention.
I’ve just checked out the Moneyfacts best buy tables, and the best rate I can get from an easy access Cash ISA is just 1.80% a year. If I lock my money away in a one-year bond, I can get 3.05% but cannot access my cash in that time.
I’m standing by my Stocks and Shares ISA
This is a huge improvement on just 12 months ago. In September last year, the best easy access Cash ISA paid just 0.60%, while the top one-year fixed rate offered 0.90%. Finally, shares have a little competition from cash.
But we are a long way from cash being king again. Inflation is currently a staggering 9.9%, and no savings account pays anywhere near that. Which means the value of money held in cash is still shrinking fast in real terms.
I can make my money work much harder by investing in a portfolio of FTSE 100 blue-chips through a Stocks and Shares ISA. This will give me a much better chance of protecting the purchasing power of my savings.
FTSE 100 shares currently yield 3.93% on average, which beats the interest rate on even the best cash ISA. This income is not as safe as savings interest, as companies can cut their dividends at any time. Yet over the longer run, they are more likely to increase their shareholder payouts. This gives me access to a rising income over time.
Also, plenty of FTSE 100 dividend aristocrats yield far more than 3.93%. Legal & General Group yields 7.13%, Phoenix Group Holdings yields 8.11%, and Rio Tinto yields an incredible 11.96%. This goes a long way towards combating inflation. High yields can be a sign of a company in trouble, although these three seem fairly solid to me.
Cash is a short-term king
The other attraction of investing in shares is that I should also enjoy some share price growth when the stock market rises. I accept that this is far from guaranteed. The FTSE 100 has fallen 4.96% this year, which is a negative return even after the yield has been added.
So I would have done better in cash. Yet I would never judge my returns from a Stocks and Shares ISA over such a short period. I’m investing for at least 25 years, and over such a lengthy period I think my portfolio of shares should compound and grow at a much faster rate than cash.
Naturally, there will be ups and downs along the way, but I am ready for those. Cash can work for short-term savings, but for my long-term retirement funds, I will continue to invest regular sums in my Stocks and Shares ISA. Even if base rates rise again in November.