Cash ISAs have been waning in popularity in recent years. That doesn’t surprise me, as low interest rates make them less attractive. Typically, even the best instant access Cash ISAs have been offering rates that don’t keep up with inflation. Now, when I’m looking for an investment, one that will lose me money in real terms doesn’t come close to firing my enthusiasm.
I’ll be keen to see 2020-21 ISA investment figures, when they become available. That’s because I expect Cash ISA uptake to show a boost during the stock market crash. Even if a Cash ISA might not even enter the picture as a viable long-term investment, it can still serve as a wealth preservation vehicle. An interest rate of, say, 1.2% or so won’t turn me into a millionaire any time soon. But on the surface, it would treat my money better than having it in shares in 2020.
Stock market crash
After all, the FTSE 100 is down 14% so far this year. And that’s even after the climbs of the past two weeks. And some individual shares have done far worse. If, for example, I’d bought Rolls-Royce shares at the beginning of 2020, I’d be sitting on an 85% loss. Now, wouldn’t I prefer having my money in a Cash ISA earning 1.2% over that? You bet I would.
But let me explain why I would still avoid that route. We’ve had plenty of financial upheaval in recent years. I’d never have predicted the banking crisis, but I did think the UK’s Brexit referendum result would usher in a few years of uncertainty. And following on from that, I expected volatility in the stock market.
I’m not the kind of investor who shuns risk and shies away from volatility, so I’ve seen the past few years as providing great opportunities for investing in shares for the long term. Of course, when I’m retired and needing income from my investments, I’ll probably be more risk-averse. So would I consider a Cash ISA at that point? No, not even then.
Low Cash ISA returns
The thing is, returns from a Cash ISA are so low I see no point trying to save the tax on them. For whatever portion of my investments I’d want to keep in cash, I’d just look for the best savings account. And if I do reach a time when I want the safest practical wealth preservation for my investments, with regular and dependable income? I’ll most likely shift the bulk of my money to investment trusts with the best track records.
An investment trust can hold back earnings in stronger years to pay out dividends in leaner years. And some of them are remarkably successful at it. For example, City of London Investment Trust and Bankers Investment Trust have raised their dividends every time for 53 consecutive years now. And City of London paid a yield of 5.6% even in 2020. I’d go for that rather than a Cash ISA to beat any future stock market crash.
And if I did have money in a Cash ISA, I’d definitely be moving it to a Stocks and Shares ISA now.