The reduction of the cash ISA allowance to £12,000 for under-65s from April 2027, as announced in the Budget, may prompt savers to review how they balance cash and investments within their portfolios. The change forms part of the government’s efforts to encourage more people to consider the long-term opportunities to increase their wealth through investing.
New analysis from Fidelity International (“Fidelity”) shows how investing has historically delivered stronger long-term returns than cash – particularly over periods of rising prices and moderate interest rates.
How investing compares to saving historically
Fidelity’s analysis rewinds to 6 April 2017, when the ISA limit was raised from £15,240 to £20,000. A saver who placed the full £20,000 in a cash ISA on that date would have £23,549 based on average rates1. However, prices have risen by over a third in that time, meaning the pot would need to reach £27,000 to keep pace with inflation.
By contrast, someone who invested £20,000 in a global tracker fund over this same period such as the Fidelity Index World would now have roughly £50,700 – an annualised growth rate of around 12%, highlighting how investing can provide a stronger buffer against inflation over the long term.
Comparison of returns from cash and investing since April 2017
Jemma Slingo, Pensions and Investment Specialist, Fidelity International comments: “Cash will always have a role in a sound financial plan – it’s the cornerstone of short-term security and peace of mind. But when it comes to growing wealth over time, cash alone can only take you so far. That’s where investing and building a diversified portfolio of assets come in.”
A balanced approach offers flexibility
With the new £12,000 cash ISA limit, many may now consider a mixed approach. Fidelity’s analysis suggests that investing £12,000 in cash and the remaining £8,000 in global equities in 2017 would have grown to approximately £34,400. This portfolio would have experienced less volatility than a fully equity-based investment while still comfortably outpacing inflation.
Average annual growth rate between April 2017 and October 2025
UK investors benefit from diversification
Since 2017, US equities have been a big driver of stock market gains. It has been a fantastic period for the technology sector, with companies like Nvidia, Microsoft and Apple turbocharging returns. This does not fully explain the discrepancy between cash and shares, however.
The UK market is often portrayed as America’s less successful cousin. However, if you had packed your ISA with exclusively UK stocks you would still have outperformed cash savers by nearly 50% over the past eight years.
Performance of £20,000 invested in UK stocks and cash since April 2017
Consistency pays off
For those who have made full use of their ISA allowance each year, the difference in outcomes is striking. In total, a saver would have contributed £180,000 – nine lots of £20,000. Again, a global tracker fund would have been the most lucrative of our five hypothetical scenarios.
Someone investing £20,000 every April in the Fidelity Index World would now have a pot worth almost £335,000. By comparison, a saver who kept the same contributions in cash would have built up just under £205,000. A blended strategy, with half in cash and half in shares, would have grown to around £269,000.
“The difference between the two portfolios is stark – but less stark than in our first example,” says Jemma Slingo, “That’s because regular investing – or drip-feeding – smooths out market ups and downs over time. It can reduce the impact of volatility, but it can generate lower overall returns – particularly if the market is moving steadily upwards.”
Performance of £20,000 invested each year from April 2017 across cash and global equities
Jemma Slingo comments: “The ISA allowance change is a timely reminder to check whether your money is working as hard as it could. Our analysis shows that those who’ve invested even part of their ISA allowance in equities since 2017 are now tens of thousands of pounds better off than those who stayed entirely in cash.
“Cash offers stability, but it has struggled to keep up with inflation over the past two decades. Even modest exposure to investments can help preserve and grow the real value of your savings over time. Markets don’t rise every year, but regular investing and a long-term view have historically rewarded patient investors.”
