The Motley Fool

Forget Cash ISAs! I’ll be building a £1m Stocks and Shares ISA with UK shares in 2021

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source

It might seem mighty tempting to stash your savings in a Cash ISA today. UK share markets have endured a wild time in 2020 as the coronavirus crisis has persisted. As a consequence a great many stock pickers have seen the value of their investments fall off a cliff.

None of this matters to me, however. Nor does the possibility of more volatility in 2021. I’ll continue to invest in my Stocks and Shares ISA despite the gloomy economic outlook.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Cash vs UK shares

Fans of cash products like Cash ISAs like the peace of mind that they apparently provide. If I invested £20,000 at the start of the year I’d still have that (possibly some accrued interest, too) to call upon today.

Image of person checking their shares portfolio on mobile phone and computer

Let’s say I’d invested in something like a FTSE 100 tracker fund instead. Britain’s blue chip UK share index is down 16% from the start of 2020. This means that my £20,000 on 1 January would have been whittled down to approximately £16,800. Plummeting dividend payments in 2020 mean that income flows from that tracker wouldn’t have taken much of the sting out of that huge fall either.

Awful cash returns

This would cause a colossal problem if I wanted to draw on that cash today. But I don’t. I buy UK shares with a view to holding them for at least a decade. Over this sort of timeframe it’s been proven that products like Stocks and Shares ISAs provide much meatier returns than their cash equivalents.

Interest rates from Cash ISAs over the past decade have lagged their historical norms by a large distance. And things have taken a turn for the worse this year as Threadneedle Street cut rates to record lows following the economic downturn.

As a consequence, the best-paying instant-access Cash ISA on the market offers an interest rate of just 0.95%. It’s unlikely that rates will improve from Cynergy Bank’s market-leading product any time soon, either. Ultra-low Bank of England benchmark rates appear here to stay. It’s possible they might even turn negative. This is why investing in UK shares is a much better way to use one’s cash today.

Sticking with stocks

Let’s assume that Cynergy Bank’s rates remain in place for the next decade. Someone who saves £300 a month in that Cash ISA can expect to make around £37,740 in that time.

By comparison, someone who invested that money in UK shares could have expected to have made as much as £59,960 by 2031. This is because the average yearly return sits at between 8% and 10% for long-term investors.

But that £22,000-plus difference is chicken feed compared to the gulf that can emerge after three-and-a-half decades of saving. A Cash ISA saver aged 30 can expect to have made around £149,300 by the time they’re 65, based on that 0.95% interest rate. They could have made a cool £1.02m if they’d invested that £300 a month in a Stocks and Shares ISA instead. It’s no exaggeration to describe the difference between those two sums as life changing.

As I say, 2020 has been a tough time for UK share pickers. But the economy will bounce back eventually and so will stock markets. In fact, those that invest after the recent stock market crash can supercharge their returns. Experts like The Motley Fool are here to tell you how.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.