The average stocks and shares ISA fund grew 2.8% in the year to February 2024, compared with the 3.73% recorded for equivalent cash savings accounts.
This marks the second consecutive year where cash ISA returns have beaten stocks and shares ISA growth.
According to the data from Moneyfactscompare.co.uk, the savings market data thrived in 2023, thanks to rising variable and fixed rates, boosting cash ISA rates too.
While the average stocks and shares ISA fund growth was below cash rates, it compares to a fall of 3.27% a year earlier between February 2022 and February 2023.
This time round, the best-performing stocks and shares ISA fund sector was technology and telecoms (34.14).
The worst-performing stocks and shares ISA fund was China/Greater China, recording negative 32.46% growth.
Meanwhile, cash has been on the up after recording average returns of 1.71% a year earlier, and up from 0.51% between February 2021 and February 2022.
‘Past performance is never guaranteed’
Rachel Springall, finance expert at Moneyfacts, said ISAs remain an essential way for savers to protect their nest egg from tax, and while savings rates have come down over the past few months, there are still better deals than this time last year.
Springall said: “Those who are prepared to invest in the stock market may be pleased to see stocks and shares ISAs return growth over the past 12 months, off the back of falls felt the year before. Savers sitting on the fence as to whether it’s time to invest may now feel more confident in the stock market.
“Traditionally, stocks and shares ISAs would be chosen by investors who are prepared to invest for better returns over the longer term on the basis that performance might fluctuate over shorter timescales, but it is essential to regularly check the performance of their pot and seek advice if they need to review their risk profile.
“There are fund sectors that have performed well over the past 12 months, including North America and Japan – up by 14.22% and 10.18% respectively – but there are also those that fell significantly. However, sectors that return growth one year can fail to perform another; indeed, between 2022 and 2023, the commodities and natural resources sector was the best-performing (returning more than 24%), but over the past 12 months it fell by almost 13%.”
She added that the most suitable ISA for any saver will depend on their own circumstances.
“Those considering stocks and shares must keep in mind that past performance is never guaranteed to be reflected in future returns, so it’s crucial investors are comfortable with their attitude to risk. The new ISA rules coming into effect from the new tax year could make these more desirable for savers who wish to subscribe to more than one ISA of each type per year. Until then, it’s worthwhile for savers to consider both their current ISA allowance and their Personal Savings Allowance (PSA) when comparing accounts. Easy access cash ISAs are ideal for those who want quick access to their funds, whereas fixed are more suited to those who want a guaranteed return of interest.”
