The Cash ISA allows savers to tuck away up to £20,000 in the current financial year. If you’re under 65, that falls to £12,000 next year. The cut gives savers a big incentive to use their allowance today. Should they go for it? First, I’ll like to issue a word of warning.
Cash is terrific for short-term savings. Especially if you’re building a pot of money you might need in a few years time, such as a property deposit. Or if you’re saving to buy a car or something. But to build long-term wealth, a Stocks and Shares ISA is the best way to go, in my view. Equities are a much more compelling option than cash over time. And the figures confirm it.
Is cash all it’s cracked up to be?
Ten years ago in 2016, the annual ISA contribution limit was £15,240. It was increased to £20,000 the following year, and it’s remained frozen there since. But let’s use that £15,240 figure. Over the last decade, the average Cash ISA has returned 4% a year. Based on that, our Cash ISA investor would have £22,559 today. Which isn’t bad. Now let’s look at equities.
Over the last decade, the average Stocks and Shares ISA has delivered an annual average compound return of 9.5%, with dividends reinvested. That would have turned £15,240 into £37,768. The difference? An extra £15,209. Which by sheer coincidence, is almost the same as that initial stake.
The real rewards of investing show up over time. With the same 4% return, a Cash ISA would turn £15,240 into £33,392 over 20 years. The Stocks and Shares ISA would have delivered £93,598. And that’s why I choose equities for long-term wealth building, such as retirement savings.
I prefer to buy individual FTSE 100 stocks, which gives me the opportunity to outpace the stock market and potentially generate an even higher return. Here’s one I really admire today.
Here’s why I like HSBC shares
I think that Asia-focused bank HSBC Holdings (LSE: HSBA) is a compelling stock for investors seeking both long-term income and growth to consider. The shares have done brilliantly lately, up 100% over one year, and 215% over five. HSBC has paid plenty of dividend income along the way. The shares are forecast to yield 4.6% this year and 5% in 2027.
Like all the big banks, HSBC has benefited from several years of elevated interest rates, which widen their net interest margins. That helped the bank post a bumper pre-tax profit of $29.9bn last year. The board used that to fund a whopping $6bn of share buybacks in 2025 alone. Sadly, the buybacks are on hold for now, as HSBC completes the acquisition of Hong Kong’s Hang Seng Bank, but I hope they’ll be back once it’s done.
Every stock has risks. While China offers HSBC a massive opportunity, the country’s economy is slowing, and the geopolitical stand-off with the US ups the pressure. When interest rates eventually fall, margins could be squeezed. But I still think HSBC is well worth considering for Stocks and Shares ISA investors, as part of a balanced portfolio of shares. Over the years, equities should make your money work a lot harder than cash.
