The Cash ISA is a total waste of time, in my opinion. It has little value for creating long-term retirement wealth. Instead, I believe that building up a balanced portfolio of bargain FTSE 100 shares will help me get rich and retire early. That’s especially true if I invest now, when so many FTSE 100 shares are available at attractive valuations.
Investing to get rich(er) and hopefully to retire early is my lifetime’s work. As I’m now in my 40s, that means I’ve got a good 30 years to use wisely.
My plan is to ignore the short-term share price movements that make some investors panic-buy or sell. Instead, I’m expanding my thinking to consider a much longer time period.
Cash ISA = useless
Because UK interest rates are at historic lows at the moment, it’s really difficult for savers to see any kind of return on their cash. I’ve been shopping around while researching this article and I’ve found some pretty shocking numbers.
Yes, it’s true that savers don’t pay tax on any money they hold in a Cash ISA, and that a Cash ISA is available for anyone over the age of 16. And that everyone gets an allowance of £20,000 to put away in a Cash ISA each tax year.
But I don’t see why anyone would bother.
Fixing the Cash ISA
A fixed-rate Cash ISA normally pays a tiny percentage more than easy-access, as a way to compensate savers for locking up their cash for longer.
But even the market-leading three-year Cash ISA pays a miserly 0.8% interest. On a huge, maximum balance of £20,000 that means I’d get £160 a year. That 0.8% is also below the current rate of UK inflation. So I’d actually be losing money every year I kept it there.
And if I needed to get my hands on that cash sooner than I thought? I’d have to pay a whopping penalty for each withdrawal of up to a year’s interest payments.
By law, Cash ISA providers have to offer me access to my own money. But most fixed-rate providers would force savers to close their whole account to get it. So it should be clear why this isn’t my preferred way to get rich and retire early.
Go FTSE 100 shares instead
By contrast, I’m already making a much better rate of return from cheap FTSE 100 shares that offer dividend income.
I’ve only been investing properly for a couple of years, in truth. By properly, I mean doing serious research into good, profitable companies. I only tend to pick the ones I think have a decent shout at remaining in business for decades to come.
That’s because the power of compound growth comes into its own when it is left to work for 10 years or more. UK investors can access compound growth by reinvesting any dividends from cheap FTSE 100 shares. This is a simple tick box in most Stocks and Shares ISA accounts.
So I’d never recommend a Cash ISA, no matter what age my readers are. Instead I stick with quality blue-chip shares and I’ve not gone far wrong yet.