Forget a Cash ISA, it’s the stock market for me every time

I’ve never gone for a Cash ISA, because interest rates are so low. I prefer the stock market instead, using a Stocks and Shares ISA.

But today, some instant access Cash ISAs offer more than 4%. And there are even some fixed-term deals at 5.5%, or more.

A good hedge?

So is a Cash ISA is a good buy now, at least for a couple of years while the stock market is choppy? I really can see why people might go for one.

But the main problem for me is that these rates still don’t come close to inflation. That stood at 8.7% in May, so even a 5.5% Cash ISA interest rate means we’d lose money in real terms.

Still, inflation will surely drop. And if we think it might get as low as 5.5%, or lower, in two years, then those Cash ISA rates might provide a bit of relief. And even if the return is low, at least it will be free of tax (and guaranteed).

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A better way

But is there a better way to help protect our money from inflation? There sure is, I reckon.

I still won’t put a penny in a Cash ISA. No, I’ll stick with the UK stock market, and buy dividend shares in my Stocks and Shares ISA instead.

I might not manage to beat inflation in 2023. But the following table shows some of the FTSE 100 stocks that are forecast to beat a Cash ISA just on dividends alone this year.

Diversification

There are plenty more, but with these eight I’ve been careful to pick from a wide selection. That provides diversification, and the extra safety it brings.

Unlike a fixed term Cash ISA, these returns are not guaranteed. And I don’t think they’ll all make these forecasts, at least not in the long term.

I rate the Vodafone dividend as perhaps the most risky, as it wouldn’t be covered by earnings, and the company has a lot of debt.

But, on average, that looks like a decent bunch of cash-paying shares to me. And I haven’t included any possible share price gains.

Share price risk

Now, share prices can go down as well as up. But for more than a century, UK shares have beaten other forms of investment when we look at longer periods. And the longer the periods, the better the outperformance.

I’m not recommending any of these stocks here, as each investor needs to do their own research and make up their own mind. And each one will have its own risks, which we need to understand.

But I can’t think why I’d ever want a Cash ISA when I can choose from stocks like these (and a whole load more too).

This post was originally published on Motley Fool