Moneyfacts: stocks and shares ISA outperform cash by £100

This is one of the best kept secrets of finance. Most people I speak to haven't heard of stocks and shares ISAs or instantly think of cash when you say ISAs. For long term savings, where you're looking to build up a pot, ISAs are great. They shield your money from income tax and dividends and you can withdraw whenever you want. You don't have to fill out a self asessement for them and if you get the investments right, growth will follow. Losses can and will happen from time to time, and that's where having time on your side comes in. If you're holding sensible investments, they'll do just fine.

The starting point has to be why the money is being invested and when it is likely to be needed, rather than which ISA type appears to have “won” over a particular historic period. Time horizon and the purpose of the funds drive the strategic asset allocation; cash vs stocks and shares choice is secondary. For money that may be required in the near term, capital security and ready access are usually more important than chasing higher expected returns. By contrast, over multi-year periods, a diversified portfolio of growth assets has a higher expected real return than cash. It is also important to acknowledge that the most recent year in markets has been highly unusual, with returns driven to a large degree by credit pouring into equities. Such performance is exceptional and should not be used as a basis for planning. Basing decisions on recent strong returns encourages performance-chasing, with clients investing after sharp rises and then disappointed when markets correct.

Cash ISAs have grown in popularity, boosted by banks eager to attract deposits. But holding too much in cash can come at a cost. Inflation erodes value over time and there's a risk of missing out on stronger long term growth. Think about your short, medium and long-term requirements and if in doubt, seek independent advice.

Over the longer term, we'd expect investments in company shares to grow more than leaving cash in the bank.

After all, if cash really was king, no businesses would exist and everybody would simply leave money in cash!

There will always be periods of time however, where the returns on cash are higher than what stocks and shares deliver. Sadly, these periods can't be predicted in advance, so it's absolutely the case of accepting periods of negative performance in the pursuit of better returns than cash.

The whole point behind investing rather than saving is to keep the value of your buying power. The gradual rising cost of goods and service (inflation) will eat away at the value of cash left in the bank.