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Forget a Cash ISA: I’d buy 5%+ yielding FTSE 100 shares to get rich and retire early

The average interest rate on a Cash ISA is currently around 1%. While that is an improvement on where it has been in the last few years, it still lags inflation and the returns that are available on a wide range of FTSE 100 shares.

In fact, it is possible to build a diverse portfolio of large-cap shares which individually yield 5%+ at the present time. As such, the portfolio yield that is obtainable could be as much as six times higher than that offered by a Cash ISA.

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As a result, now could be the right time to switch from a Cash ISA to FTSE 100 shares, with the index appearing to offer excellent value for money at the present time.

Global growth opportunity

While the prospect of a full-scale trade war between the US and China may continue to dominate news headlines in the short term, the long-term prospects for the world economy appear to be bright.

Major economies continue to grow at a fast pace, and their forecasts are generally encouraging. With wage growth in countries such as India and China expected to remain high, demand for a variety of goods and services could grow at a fast pace.

Likewise, population growth may present investment opportunities in a variety of industries that could produce rising dividends and share prices for a wide range of businesses.

Low valuations

As well as the potential for growth, the FTSE 100 also appears to offer value for money at the present time. It trades below its all-time high, while its price level is less than 10% higher than it was around 20 years ago.

With the stock market being a cyclical investment opportunity, relatively modest returns over the last two decades suggest that future returns could be high. As mentioned, a relatively high number of large-cap shares have dividend yields that are inflated when compared to their historic levels. Similarly, the price-to-earnings (P/E) ratios of many stocks are below their long-term averages despite them having access to an encouraging global growth opportunity.

As such, investing in FTSE 100 stocks could produce a higher income return than a Cash ISA. It may also lead to capital growth in the long run.


Although buying stocks entails a risk of capital loss that is not present with a Cash ISA, from a risk/reward standpoint the FTSE 100 appears to be significantly more attractive at the present time.

The track record of the internationally-focused FTSE 100 shows that while bear markets and corrections occur regularly for the index over the short term, blue-chip shares have delivered total returns in the long run that are in the high single-digits.

Although past performance is not always an accurate guide to the future, buying high-yielding stocks at fair prices today could produce significantly higher returns than a Cash ISA over the long run.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.