Cash ISAs Could Offer a Higher Yield Than Stocks and Shares ISAs in 2025

Over the years, we’ve become accustomed to seeing stocks and shares rally to new heights, and the consistent growth has been a sight to behold for Stocks and Shares ISA investors, many of whom have managed to grow their wealth significantly. 

With as many as 1,322 Stocks and Shares ISA holders now holding over £1 million in their accounts, it’s clear that the stock market is a great strategy for those with a risk appetite seeking to significantly grow their wealth. 

Despite this, UK savers are enjoying the relative security of Cash ISAs, which offer fixed rates without the risk of their savings falling in a market downturn. 

While 3.8 million individuals have subscribed to Stocks and Shares ISAs, as many as 7.9 million UK adults subscribed to Cash ISAs in the 2022/2023 financial year, and with good reason.

Recent figures suggest that the average Stocks and Shares ISA returned almost 12% over the past 12 months compared to around 3.8% for the average Cash ISA, but there are several reasons why cash may yet be king when it comes to our saving strategies. With this in mind, let’s take a look at five reasons why Cash ISAs could offer a higher yield than Stocks and Shares in 2025: 

Inflation Brings Outperformance

Inflationary environments can cause Cash ISAs to outperform their Stocks and Shares counterparts, looking at historical trends. 

As UK inflation peaked at 11.1% in October 2022, many individual savings account holders struggled to ensure that their yields offered higher returns in real terms. 

Between February 2022 and February 2023, the average Stocks and Shares ISA fund experienced a loss of 3.27% as investors cashed out of their stock market holdings. At this time, the Bank of England’s hawkish reversion to introducing higher interest rates to combat inflation meant that more Cash ISAs began to offer higher yields. 

Although inflation will be lower in 2025 and the Bank of England has begun lowering interest rates, the stubborn consumer price index (CPI), which rose to 3% in January 2025, could yet introduce more fear in stocks and shares and slow down interest rate cuts. 

If inflation remains stubborn, it may harm Stocks and Shares ISAs more than Cash ISAs in terms of yield, just like in 2022. 

Cash is Still King in the UK

Although the American S&P 500 index rallied 23% in 2024, the UK’s FTSE 100 returned just 5.98%, highlighting that for more domestically-focused investments, there is little to choose between the stock market and fixed-rate Cash ISAs. 

Given that the London Stock Exchange doesn’t have the same access to high-performing tech stocks as the United States, Cash ISAs could become the highest-yielding form of savings account when focusing solely on UK investing. 

You will be presented with a selection of different AER rates when getting a Cash ISA, and the best-yielding options have every chance to provide higher returns than the FTSE 100 over the foreseeable future. 

Overcoming Uncertainty

The ongoing artificial intelligence boom has helped the stock market in the United States to trend higher, but the launch of DeepSeek, a Chinese generative AI competitor, shook investor confidence and caused the tech-heavy S&P 500 to struggle for momentum. 

At a time when the famously unpredictable Donald Trump is carrying out sweeping changes to US trade and regulation, 2025 is certain to be a more volatile landscape for stocks, which could see the security of Cash ISAs outperform their Stock and Shares counterparts even when investors look to previously high growth US stocks as a core component of their portfolio. 

Growth Isn’t Guaranteed in 2025

While Stocks and Shares ISAs have enjoyed two strong years thanks to Wall Street growth, expectations for 2025 appear to be more subdued. 

According to Morgan Stanley estimates, further stock market gains are likely in the year ahead but may be more muted compared to the roaring rallies driven by the artificial intelligence boom. 

Historically speaking, the third year of a bull market only generates mediocre returns on average and is typically not negative, but with the United States embroiled in trade wars with many of its biggest exporters, there are plenty of confounding factors that could push slower growth below Cash ISA yields in 2025.

It’s Easier to Assess Funds

Another reason why Cash ISAs may offer a higher yield than Stock and Shares ISAs is simply due to the relative ease of withdrawing funds. 

Many Cash ISAs offer easy access to funds, while Stocks and Shares ISAs rely on account managers to sell investments off in a process that can take many days before funds are accessible. 

Although this doesn’t affect the size of your yield, it allows you to realise your returns faster and keep a higher proportion of your wealth liquid whenever required, making your yields more accessible with Cash ISAs. 

The Year of the Cash ISA? 

We saw in 2022 that the Cash ISA can still be the most effective way to grow our wealth for a variety of reasons. 

Although the recent Wall Street rally has pushed more Stocks and Shares ISAs higher in terms of returns, the fixed rates offered by Cash ISAs are far more effective at protecting against uncertainty and a series of macroeconomic factors that could lead to stock market downturns. 

At a time when economic uncertainty is creeping back into Wall Street, we’re likely to see more investors consider the yield potential of Cash ISAs, as well as its long-term stability as a major selling point.