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

“Savers may be intrigued to know that stocks & shares ISA growth outpaced cash ISAs over the past 12 months, which is a turn of events from the previous year of poor returns overall. Those who have not felt confident enough to invest in the stock market may then feel more inclined. However, it is worth pointing out that cash ISAs previously outpaced stocks & shares ISA growth for two consecutive years overall, amid stock market turmoil. Cash ISAs still have their part to play for customers, particularly the more risk averse. The Government’s freeze on income tax thresholds makes cash ISAs more attractive, as there will be savers falling into the higher rate tax-bracket, effectively halving their Personal Savings Allowance (PSA).

“A stocks & shares ISA is suitable for those who intend to invest over the longer-term, as fund performance can fluctuate over shorter-term timescales. This makes it vital for investors to regularly check the performance of their pot and seek advice if they need to review their risk profile. As may be expected, there was a division in the rises and falls for different fund sectors over the past 12 months. North America, Japan and UK Equity Income returned growth of 24.43%, 10.08% and 14.50% respectively, but there are other sectors which fell significantly. Indeed, the worst-performing stocks & shares ISA fund sector over the past year (Latin America) fell by more than 10%. However, sectors that return growth one year can fail to perform another; indeed, between 2023 and 2024, the China/Greater China sector fell by more than 30%, but over the past 12 months it returned growth of over 20%.

“It is positive to see the average return on cash ISAs over the past 12 months has been on par with the previous year, but inflation averaged above the 2% target over that time frame, which eats away at the true spending power of any investment. Therefore, those now considering a stocks & shares ISA would be wise to keep in mind that past performance is never guaranteed to be reflected in future returns. Indeed, the significant rise in stock markets over the last year may not be sustained and could fall back. Those more risk averse will find fixed rate cash ISAs are an ideal choice for a guaranteed return of interest, and longer-term deals may become more attractive in the coming months, but easy access cash ISAs are more suitable for those who may need quick access to their funds.”