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Forget a Cash ISA! I think buying UK shares is a better way to get rich and retire early

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Savings levels in the UK have just hit an all-time high. Between April and June British households saved around £3 out of every £10 that they earned, according to the Bank of England. But are citizens making the most of their saved cash by buying UK shares?

Financial products like Cash ISAs remain white hot right now. Britons are using the cash they’ve built up during Covid-19 lockdown periods to save some excess capital for a rainy day. This is clearly a very sensible idea as the UK economy suffers its worst economic downturn for three centuries.

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However, it’s likely that a huge number of savers are using Cash ISAs because the tough economic outlook is discouraging them from buying riskier assets like UK shares. The straightforward and effort-free way of saving in something like this is also massively appealing to lots of savers.

Hedge shaped as the pound symbol inside a glass piggy bank

You’re better off with UK shares

You may also consider the Cash ISA as a great investment vehicle in which to hold your money today. I think that saving the bulk of your money in one of these is a shocking mistake though. It’s not because your cash isn’t really safe due to the ravages of inflation as consumer price inflation (or CPI) currently sits at five-year lows around 0.2%. Though of course, CPI is likely to rise once Covid-19 lockdowns become history and people start spending again.

It’s that people stuffing their money in Cash ISAs to save for the future rather than just holding emergency cash are losing the chance to make a fortune with UK shares instead. History shows us that long-term UK share investors make an average annual return of at least 8% a year. Compare that with the paltry interest rates that even the best-paying instant access Cash ISA pays. According to money comparison site comparethemarket.com, this sits at a pathetic 1% (in a product offered by Cynergy Bank).

£423k or £126k? It’s your choice!

Choosing to saving in a Cash ISA instead of buying UK shares in a Stocks and Shares ISA could cost you the chance of building a big nest egg for retirement. It is also likely to leave your hopes of retiring early in tatters.

Using that 1% interest rate as a rough guide, someone who invests £300 a month for 30 years in a Cash ISA can expect to have made around £126,000. It’s not bad. But total interest of £17,800 isn’t a great return on total savings of £108,000 and three decades of hard saving. Had they used that £300 a month to buy UK shares instead they’d have made at least £423,000 based on those proven rates of return.

This is why I’ve continued to buy UK shares in my own Stocks and Shares ISA instead of taking the easy route with a Cash ISA. As a long-term investor I’m confident that my hard-saved cash will deliver spectacular returns in the years ahead and help me enjoy a comfortable retirement.

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Royston Wild 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.

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