Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said:

“Cash ISA returns have now beaten stocks & shares ISA growth for the past two consecutive years. The savings market thrived during 2023, thanks to rising variable and fixed rates, and cash ISA rates received a boost. Savings rates have come down over the past few months, but consumers can still find better returns than at this time last year, and ISAs remain an essential way for savers to protect their nest egg from tax. Those who are prepared to invest in the stock market may be pleased to see stocks & 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 & 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 which 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 which fell significantly. Indeed, the worst-performing stocks & shares ISA fund sector over the past year (China/Greater China) fell by more than 30%. 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%.

“The most suitable ISA for any saver will depend on their own circumstances. Those considering stocks & 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.”