A cash ISA holder who’d maxed out their annual ISA allowance every year since 1999 would be sitting on an average of £153,191 now, according to analysis by Scottish Friendly.

But if they’d invested their money in the FTSE All-Share index through a stocks and shares ISA instead, they would have accrued a total of £194,665 (with average annual charges of 1.4%) – some £41,474 more.

Since April 1999, the FTSE All-Share, which is made up of more than 600 companies listed on the London Stock Exchange, has returned on average 6.3% a year, or 2.9% when you take into account inflation and average investment fees.

That is more than double the 1.3% average annual return of cash ISAs, after inflation, over the same 20-year period, the research said.

The popular choice

Despite the potential for higher returns on the stock market, cash ISAs remain the more popular option among savers, although the number of people opening these accounts has fallen dramatically in recent years.

In the 2008/09 financial year, a record 12.2 million people opened a cash ISA, compared to 3 million who in that same year opened a stocks and shares ISA, according to Scottish Friendly’s analysis of HMRC data.

However, just 7.8 million opened a cash ISA in the 17/18 financial year – the lowest level since 2002. In the same tax year, 2.8 million people opened a stocks and shares ISA.

A survey of 4,000 people by Scottish Friendly found savers were nearly three times as likely to contribute regularly to a cash ISA than a stocks and shares equivalent.

More than a fifth of respondents said they added to a cash ISA on a monthly basis, compared to just 8% of those who contributed monthly to a stocks and shares ISA.

Kevin Brown, savings specialist at Scottish Friendly, said: “When it comes to saving, the UK has a seemingly unbreakable attachment to the cash ISA. But the figures are clear – over the past 20 years savers who put their money into the stock market instead could have been thousands of pounds better off. That extra cash could, for example, allow you to retire earlier, help a loved one onto the housing ladder or even to fund a holiday of a lifetime.

“Cash ISAs clearly have a place, but history shows us that the best returns over the years have been achieved by those who have put their money into the stock market. And that is unlikely to change while interest rates are near record lows. But of course, none of us have a crystal ball, so just because something has performed well in the past doesn’t mean it will perform well in the future.”