Equity ISAs trounce cash in 2010

Despite interest rates remaining at record lows and equity markets performing well, cautious savers are still plumping for cash ISAs, according to research from Virgin Money.

The company's analysis showed that four times as many savers opted for a cash ISA than a equity ISA in 2010. However it's the equity investors that will be smiling now, sitting on a typical return four times greater than cash savers.

Savers who put the maximum £5,100 in a top cash ISA during the 2009/10 tax year would have typically seen returns of around £145 (based on a 2.85 interest rate), but investors who put the same amount in a stocks and shares ISA would have seen their money grow by £593 (before charges, based on the 11.62% annual return of the Virgin Index Tracking Trust ISA, which tracks the FTSE All Share).

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Investing in the stockmarket isn't for every one. However, if you can afford to tie your money up for five years or more and have enough savings to cope with any immediate expenses or emergencies it's worth considering channeling some of your savings into equity-based investments.

Given levels of volatility in recent years, savers are right to be concerned about investing, however research shows it's time, rather than timing that is the key to returns.

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So while investors in Virgin Index Trust would have suffered a loss of 3.91% in the four years to January 2011, those that have invested in January 2003 would have seen a return of 63.43%. Making more still, those that invested in April 1995 would have made a return of 98.46%  by January 2011.

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