Millions of people in the UK either have a Cash ISA or Stock and Shares ISA. And with good reason, as they shelter returns from the taxman.
Some have both, of course, including myself. However, out of these two, I have a clear favourite: the Stocks and Shares ISA. Here’s why…
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No comparison
The reason I favour this account is because I can potentially generate much higher returns in the long run.
The facts speak for themselves. Over the past decade, money held in a typical Cash ISA has lost purchasing power in real (inflation-adjusted) terms. In other words, while the balance will have gone up, it hasn’t grown fast enough to keep up with the rising cost of goods and services.
I’m sure I don’t need to labour this point. We’ve all seen everything relentlessly go up, from utility bills to the price of a pint. Meanwhile, shrinkflation is almost comical nowadays — I recently opened a bag of crisps and my hand sunk almost to the bottom before I reached anything edible!
In this environment, money needs to work harder to stay ahead. And this is where the power of the stock market comes in, as three of the most popular blue-chip indexes have delivered substantially higher returns than cash in the past decade.
Here are the 10-year returns, with dividends reinvested, up to 30 June:
- FTSE 100: 134.5%
- S&P 500: 301.9%
- Nasdaq-100: 629.6%
Admittedly, there are no guarantees the next 10 years will be as fruitful, particularly for tech-heavy US indices. But I’d be very surprised if stocks don’t continue outperforming cash returns.
Don’t be a forced seller
Still, I do have a Cash ISA to keep some savings for emergencies. That’s because the stock market occasionally tanks and I don’t want to be a forced seller when share prices are temporary depressed.
This means that investing is only really suitable for money that doesn’t need to be accessed for a few years. It’s certainly not the place for a house deposit, upcoming tax bill, or wedding funds.
My own investment timeframe when buying a stock is at least five years. With this in mind, here’s a FTSE 100 stock I’ve held since 2022 (knocking on for five years now).
Booming BAE
I invested in defence giant BAE Systems (LSE:BA.) a few months after Russia invaded Ukraine. Following this shocking event, I failed to see how defence spending wouldn’t rocket higher over many years, particularly in Europe.
Fast forward to today, BAE’s order backlog has reached a whopping £84bn, including £16.4bn received in the first half of 2026. Sales increased 9% during the period, with all sectors (air, maritime, electronic systems, cyber and intelligence, platforms and services) contributing growth.
The global threat picture remains highly volatile and governments are responding with sustained increases in their defence budgets.
CEO Charles Woodburn.
BAE stock’s up 267% in five years, but I don’t think it’s too late to consider it. The stock remains 9% below its March high, is offering a 2% forward dividend yield, and the firm’s backlog supports years of highly visible revenue.
That said, the valuation isn’t cheap, so any mention of reduced defence spending by NATO’s a risk. Also, I appreciate arms manufacturers aren’t everyone’s cup of tea.
Should you invest £5,000 in BAE Systems right now?
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Ben McPoland owns shares in BAE Systems.
This story originally appeared on Motley Fool
