The FTSE 100 Has Returned 7.2% Annualised for 40 Years — Your 4.6% Cash ISA Is a £103,000 Bet Against the Entire History of Capitalism

Let's run the numbers properly. £20,000 invested today:

• Cash ISA at 4.6%: After 10 years: £31,366. After 20 years: £49,194. After 30 years: £77,146.
• S&S ISA at 7%: After 10 years: £39,343. After 20 years: £77,394. After 30 years: £152,197.

The difference after 30 years: £75,051. That's nearly four extra years of the median UK salary. And 7% is not a cherry-picked number — the MSCI World Index has returned 7.5% annualised in GBP terms since 1970. The FTSE All-Share has returned 7.2% annualised since 1986, including dividends reinvested. These are not venture capital returns. These are boring, broad-market, buy-the-index-and-forget-about-it returns. For a deeper dive on how these numbers work, read our CAGR and total return explainer.

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But it gets worse. The 4.6% Cash ISA rate exists only because the Bank of England base rate is 3.75%. The Bank is cutting — three reductions since August 2025 from 5.0% to 3.75%. Markets expect further cuts. If the base rate falls to 3.0% by 2027, your Cash ISA will be paying closer to 3.5%. Now re-run the 30-year projection at 3.5%: £20,000 becomes £56,139. The S&S ISA at 7% is still £152,197. The gap is now £96,058. You are betting six figures that interest rates — which the Bank of England explicitly targets downwards in a recession — will stay high forever. That is not prudence. That is a forecast masquerading as a virtue.

CPI inflation fell to 2.8% in April 2026, down from 3.3% in March. The Cash ISA defender looks at this and says: 4.6% minus 2.8% equals a 1.8% real return — that's genuinely positive! They are correct, for approximately the next 30 days.

Inflation is not stable. In the last five years, UK CPI has been 0.4% (2020), 2.6% (2021), 9.1% (2022), 7.3% (2023), 3.0% (2024), and now around 2.8%. That's a range of nearly 9 percentage points. Your Cash ISA rate, meanwhile, is set by a committee of nine people in Threadneedle Street who are explicitly trying to stimulate the economy — which sometimes means letting inflation run above target while keeping rates low.

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A Stocks & Shares ISA holds real assets: companies that own factories, intellectual property, supply chains, and pricing power. When inflation rises, those companies raise their prices. Their revenues and profits inflate alongside the currency. UK equities returned 8.4% annualised during the high-inflation 1970s — not because the 1970s were a great decade for business, but because nominal earnings inflated and dragged share prices up with them. Cash, by contrast, is a nominal instrument. It does not inflate. It sits there, paying whatever the Bank of England decides, while the purchasing power of every pound is determined by forces the Bank cannot fully control. For a practical example of what inflation does to dividend income, see our explainer on dividend yield.

The Cash ISA advocate's strongest argument is sequence-of-returns risk: what if markets crash just as you start investing, permanently damaging your final balance? It's a real risk, worth taking seriously. It also cuts far more strongly in the opposite direction than anyone admits.

Consider an ISA investor who started in March 2009 — the absolute bottom of the financial crisis. £20,000 in the FTSE 100 at 3,512 would be worth approximately £82,000 today, a 310% return. Now consider the Cash ISA investor who started on the exact same day. With rates averaging about 1.5% over the subsequent 15 years (they fell to 0.5% in 2009 and stayed there for over a decade), that £20,000 would be worth roughly £25,000. The S&S ISA investor has triple the money. The sequence worked for them, not against them.

The sequence argument is symmetrical: sometimes you start at the bottom and compound returns work in your favour. Sometimes you start at the top and they work against you. But here's the asymmetry: when you start at the bottom, the S&S ISA produces life-changing outperformance. When you start at the top, the recovery — historically — takes 3-5 years, and after that the compounding resumes. The Cash ISA, by contrast, never produces life-changing outperformance. It is structurally incapable of it. You are giving up the upside to avoid the downside that, historically, has always been temporary.

The ISA wrapper is identical whether you hold cash or equities inside it — £20,000 annual allowance, tax-free growth, tax-free withdrawals. But the value of that tax protection is radically different depending on what you hold.

A basic-rate taxpayer with a Cash ISA earning £920 of interest is sheltering £184 of tax (20% of £920). An equities ISA returning £1,400 in year one — a combination of dividends and capital gains — is sheltering something different. Dividends above the £500 dividend allowance are taxed at 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers. Capital gains above the £3,000 annual exempt amount are taxed at 18% or 24% depending on your income band. Our tax hub has the full breakdown of 2026/27 rates.

Over decades, a Stocks & Shares ISA accumulates significant capital gains. By the time you're withdrawing in retirement, a £500,000 ISA pot outside the wrapper would face a large CGT bill on disposal. Inside the ISA, it's tax-free. The Cash ISA protects you from tax on interest — a saving of hundreds per year. The Stocks & Shares ISA protects you from tax on dividends, capital gains, and compound growth — a saving that can reach tens of thousands. You are using the most powerful tax shelter Parliament has ever created, and filling it with the lowest-returning asset class available. That is not caution. That is wasting an ISA allowance.

Financial advice has a dangerous habit of defining 'risk' as 'volatility' — how much an asset price bounces around day to day. By that definition, cash is risk-free and equities are risky. This is the shallowest possible understanding of risk, and it has cost British savers billions.

The real risk for a long-term saver is not volatility. It is running out of money. It is arriving at 65 with a pot that cannot sustain the retirement you want. It is watching inflation compound against your cash while your equities-holding neighbour — the one everyone called reckless — retires five years earlier than you.

Risk has to be matched to time horizon. For money you need in 6-24 months — a house deposit, an emergency fund, next year's school fees — the Cash ISA is the correct tool. For money you need in 20-30 years — retirement, financial independence, leaving something to your children — the Cash ISA is actively dangerous. It guarantees you will underperform the assets that historically deliver long-term returns, and it calls that guarantee 'safety'. A long-term saver who avoids equities is like a marathon runner who refuses to breathe above a resting heart rate. You'll finish the race, eventually, hours after everyone else has gone home. The investing hub covers core concepts that every long-term ISA investor should understand — from free cash flow to EPS and dividend cover.

This article is for informational purposes only and does not constitute financial advice. You should seek independent financial advice before making any investment decisions.