The risk of opting for cash over investing

New analysis from AJ Bell shows the dramatic difference between keeping money in cash and investing it over the long term. Since 1999, when ISAs were launched, stock market investments have significantly outpaced both inflation and cash savings – with investors building far greater wealth despite short-term market ups and downs.

The analysis shows a one-off £1,000 investment made in April 1999 would now be worth £6,285 if invested in the average North America fund, compared to just £2,079 if held in the average Cash ISA. Even UK equity funds, despite two decades of market challenges, would have grown from the original £1,000 to £3,787, comfortably beating cash returns and inflation over the same period. By contrast, UK gilts, which are often seen as a safe haven, have lagged badly, rising to just £1,912, failing even to keep up with the cost of living.

Those who invested £1,000 every year since 1999 would now have portfolios worth £127,887 if they had invested it in North American funds, £92,349 if it was in global funds, and £67,866 if invested in UK equities. By contrast, regular savers in a Cash ISA would have built up just £36,290, while the same annual saving would be worth £40,717 had it tracked inflation each year – meaning cash savings have lost real spending power.

Over that 26-year period the investment in the average North America fund would be nearly five times the total contributions. If that money had gone into global funds it would be more than triple the investor’s contributions over that time.

Source: AJ Bell/Bank of England/FE. Data from 30th April 1999 to end of September 2025. Investment figures show average performance of sector including fund charges; inflation is based on CPI measure; Cash ISA returns based on average interest rate available.

These figures highlight the hidden cost of playing it safe. While keeping money in cash can feel comfortable, over time it’s an almost guaranteed way to lose purchasing power. Inflation quietly eats away at savings, and even the average Cash ISA will have struggled to keep pace. 

Of course, markets don’t move in a straight line and there will always be periods of volatility, but history shows that patient investors are consistently better off than those who leave their money languishing in cash.

Even over the past year, investments have pulled ahead. A £20,000 lump sum invested in October 2024 would have grown to £22,612 in North American funds, compared to £20,698 in a Cash ISA and £19,661 in Gilts. Inflation over the same period rose to £20,760, meaning cash savers once again fell behind in real terms. The lesson is clear: if you want your money to work harder than inflation, you should consider taking some risk and investing for the long term.

Of course, these are only averages. Savers who chased the top-paying Cash ISAs would have done better – but equally those who left their money sitting in old savings accounts or their current account earning little interest would have fared far worse. By the same token, investors who picked the best-performing funds could have made far more than the average figures suggest – while those who picked a dud could have lost money.  

Source: AJ Bell/Bank of England/FE. Data from 1st October 2024 to 30th September 2025 - based on £20,000 investment at start of period and no further contributions. Investment figures show average performance of sector including fund charges; inflation is based on CPI measure; Cash ISA returns based on average interest rate available.

Cash can still be king

That’s not to say that everyone should ditch cash and bonds, as safe havens have a key role to play in people’s portfolios. Some people prefer the security of knowing their money is safe from market fluctuations, while others need a short-term home for their money or easy-access savings. But it shines a light on the missed wealth for those who are defaulting to cash and not taking that first step into investing. Being in cash should be a conscious decision, rather than unthinkingly hoarding it.

When it comes to choosing between a Cash ISA and a Stocks and shares ISA, the key question is: are you saving for the short term or the long term? If you’re setting money aside for an emergency fund, typically three to six months’ worth of expenses, then a Cash ISA is a solid option. It keeps your money accessible while offering tax-free interest. But if you’re looking at medium- to long-term goals, such as saving for retirement alongside a pension, for a house deposit, home improvements in future or a career break, then a Stocks and shares ISA could be a more effective route, given that markets tend to rise over time and outperform cash, despite short-term fluctuations.