Cash ISAs are in the news again as it’s reported the chancellor, Rachel Reeves, is considering reducing the annual allowance in a bid to boost equity ownership among British savers and support UK equity markets.

Taking away allowances from cash ISAs may not directly boost investors – often people use the cash allowance to build up a buffer for a rainy day and then start to feed those savings into a stocks and shares ISA along with incremental savings they set aside once the buffer is in place. I’m not sure that limiting the rate at which you can build up your rainy day fund will see people instantly divert funds to a riskier stocks and shares ISA?

That aside, the pointI wanted to highlight here is more of a technical one -the extent of the variance between these two main types of ISAs over the long term.

I’ve prodded around some figures and come up with a rough guide to how a cash ISA has performed against a stocks and shares ISA invested solely in the FTSE 100 over the last ten years. (figures are estimated based on freely available data and are designed to be illustrative).

£1,000 Invested: Cash ISA vs FTSE 100 Tracker (2015–2025)

Stocks and Shares ISA: FTSE 100 Tracker

For example, the iShares Core FTSE 100 UCITS ETF GBP (Acc) CUKX

• Starting point (2015 FTSE 100 index level): ~6,500

• Ending point (2025 FTSE 100 index level): ~8,700
  → Price return: +33.8% over 10 years

• Dividend yield: Historically averaged ~4% per year

• With reinvested dividends, the total return is estimated at ~98.1% over 10 years

• Annualised return: ~7.1%

£1,000 invested in a FTSE 100 tracker in July 2015 would now be worth:

~£1,981 by mid-2025
(Assumes reinvested dividends and no fees)

This reflects both capital appreciation and compounding of dividends, even with the FTSE 100 being relatively rangebound for part of the period.

The power of reinvested dividends must be understood – the price return of the index over the last 10 years is around 33%, while the total return with dividends reinvested is almost 100%.

Cash ISA Performance

• 2015–2021: Very low interest rates (between 0.3%–1.3%)

• 2022–2025: Sharply rising rates (2.5% to 4.0%) after Bank of England tightened monetary policy

• Blended average annual return: Roughly 2%–2.5%

A saver rolling over £1,000 annually into the best available Cash ISAs (not average accounts) would have ended with:

 ~£1,250 by mid-2025

This assumes active switching and capturing top-tier ISA rates each year — many real-world savers would have done worse.

According to Bank of England data the average cash ISA rates over the last ten years was just 1.1%, roughly halving the best available return set out above.

Summary Table

Key Considerations

Volatility: Stocks and Shares ISAs come with market risk — e.g., the FTSE 100 dropped ~30% in early 2020 during the pandemic before rebounding. Your time horizon and risk tolerance is an important consideration.

Tax efficiency: Both types of ISAs are tax-free, making comparisons clean and fair.

Reinvestment impact: Reinvested dividends significantly increase equity returns over time.

Inflation: Cash ISA returns were mostly below inflation until 2022, meaning negative real returns in most years.

Verdict

Over the last decade, a Stocks and Shares ISA tracking the FTSE 100 dramatically outperformed a Cash ISA:

Nearly double the ending value

Much stronger compound growth

Despite being a relatively conservative index, the FTSE 100 generated significant gains thanks to dividends and late-decade growth.

Bear in mind a stocks and shares ISA that featured a mix of UK and US shares would have delivered even greater returns in this period.

Although stock market returns are not guaranteed, history shows that they typically outstrip cash over the long term.

Chart: iShares Core FTSE 100 UCITS ETF GBP (Acc) CUKX – the ETF is a useful illustration = it has almost doubled in ten years. It’s an Accumulation fund, which means all dividends paid by the companies (in this case those listed on the FTSE 100) are reinvested. It also has very low fees relative to other ETFs with an ongoing charge of 0.07%.