What is the average return on a stocks and shares ISA?

Investing using a stocks and shares ISAs offers the benefit of tax efficiency. But what is the average return on a stocks and shares ISA? We take a look.

Rain drops on surface with the text “What is the average return on a stocks and shares ISA?” and The Motley Fool jester cap logo

It’s well known that a stocks and shares ISA can provide a tax-efficient way to invest your money. But have you ever wondered what the average return on a stocks and shares ISA is? Let’s take a look at how investments held in a stocks and shares ISA have performed historically.

What is a stocks and shares ISA?

Let’s start by clarifying what a stocks and shares ISA is.

Simply put, it’s a tax wrapper that can be put around a wide range of different investment products. These products include individual stocks and shares, unit trusts, investment trusts and corporate and government bonds. Any investment growth or income earned in a stocks and shares ISA is tax free.

Currently, you can save up to £20,000 each tax year in an ISA. This is known as the ISA allowance. The allowance can be shared around different types of ISAs, but not two of the same type.

What is the average return on a stocks and shares ISA?

The performance of any investment will depend on your investment strategy and the exact investments you hold.

The most recent data available – for the tax year 2020/2021 – showed the average stocks and shares ISA returned 13.55%.

However, the previous year – when the Covid-19 pandemic hit with a vengeance – average returns were far worse. Investors lost an average of 13.3% in the 2019/2020 tax year.1

Tax year Average return on a stocks and shares ISA Average return on a cash ISA
2020/2021 13.55% 0.63%
2019/2020 -13.33% 1.18%
2018/2019 4.04% ~1.1%

Generally speaking, stocks and shares ISAs have historically performed well. The average annual rate of return for stocks and shares ISAs over the past 10 years is 9.64%.2

Is it worth getting a Stocks and Shares ISA?

It’s hard to say whether a stocks and shares ISA is worth it for everyone. Money put into a stocks and shares ISA is invested. As with all investing, there is the risk of getting back less than you put in.

However, stocks and shares ISAs offer the possibility of higher returns on your money. This is especially true if you take a long-term approach.

Although a savings account or even a cash ISA may appear to be a safer option, rising living costs may erode the value of your savings pot if the rate of inflation exceeds the rate of interest you are earning.

What risks should you be aware of?

As with all investing, there are risks involved in having a stocks and shares ISA.

Stock markets may go up and down in the short term, but over the long term, they traditionally have an upward bias. If you are patient, you will likely see a positive return.

That said, if you know you will need your cash in the short term, say the next two to three years, then a cash ISA might be the better option.

It’s important to note that you don’t necessarily have to choose between a cash ISA and a stocks and shares ISA. You can have both – you just can’t deposit more than £20,000 across both of the ISAs in a single tax year.

Which provider should you choose for the biggest returns?

There is no one ‘best’ provider. People will find different providers are right for them, depending on their own unique circumstances.

You can also change your mind and transfer your ISA at any time without losing your benefits.

When choosing a stocks and shares ISA, consider factors such as:

  • Fees
  • Selection of investments available
  • Availability of research tools
  • Customer service

Keep in mind that the best stocks and shares ISA is one that you can afford and that comes with features that align with your goals, preferences and investing strategy. To help you make a good choice, take a look at our list of featured stocks and shares ISAs in the UK.

Finally, remember that past returns are not a guarantee of future results. Given the risk involved with investing in general, make sure you do your research before you part with your cash and seek independent financial advice if you need it.

6 shares that we think could be the biggest winners of the stock market crash

The hotshot analysts at The Motley Fool UK’s flagship share-tipping service Share Advisor have just unveiled what they think could be the six best buys for investors right now.

And while timing isn't everything, the average return of their previous stock picks shows that it could pay to get in early on their best ideas – particularly in this current climate!

Sources

  1. “Would you be better off with a stocks and shares ISA over cash ISA?” – Moneyfacts.co.uk
  2. “Cash ISA vs Stocks and Shares ISA: A 10-year study” – Moneyfarm.com

The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.