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  • February 18, 2025
£21,392 to invest in an ISA? Consider UK shares for a turbo pension

£21,392 to invest in an ISA? Consider UK shares for a turbo pension

£21,392 to invest in an ISA? Consider UK shares for a turbo pension

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According to CompareTheMarket.com, the average Briton has £21,392 in savings. While past performance is not always a reliable guide to the future, history shows that an investment like this in UK shares can provide an excellent retirement income.

This is why invest in the London Stock Exchange might be worth serious consideration.

Cash benefits

Don’t get me wrong. I think keeping cash in a savings account (such as a tax-efficient one). Cash ISA) can be a great idea depending on personal circumstances and goals.

This tactic can be used to manage risk. I know that $100 in savings will still be there in ten years. The same cannot be guaranteed for £100 parked in a car Stocks and Shares ISAfor example. Stock markets go up and down and companies go bankrupt.

Additionally, money stored in a savings account can be easily withdrawn if it is suddenly needed for emergency funds. Selling shares requires more effort and costs. And like I said, I may have less money to withdraw than I initially deposited.

Keeping money in savings has also become more attractive recently in terms of pure returns. Savings interest rates have risen following the Bank of England (BoE) interest rate increases. For example, this has led to an increase in interest in Cash ISAs, while subscriptions to Stocks and Shares ISAs have fallen.

Poor returns?

That said, parking money in a savings account isn’t without significant risk either.

Money deposited can be protected (up to £85,000 per person under the Financial Services Compensation Scheme). But investors who prioritize saving cash over investing in, say, UK shares may find they don’t have enough money to retire on.

Let’s say someone keeps the aforementioned £21,392 in a savings account for 30 years. We’ll assume the interest rate here is 4.9%, the rate on my own Cash ISA. Eventually they would have £92,761 in their pension pot.

The same amount invested in, for example, a FTSE250 tracker fund in a stocks and shares ISA could have been a much superior one £315,116. Assuming the 20-year average annualized return of 9% on FTSE 250 shares remains the same. And of course the annual ISA limit of £20,000 means £21,392 needs to be invested over two tax years.

It’s also important to note that interest rates on savings accounts – including mine – are falling sharply as the BoE responds to falling inflation

A top fund

Although riskier on paper, considering an investment in a fund like the iShares FTSE 250 ETF (LSE: MIDDLE) can help individuals significantly reduce the risk to their money.

Investors are spreading their capital across a wide range of sectors, including financials, real estate, industrials, and discretionary and consumer essentials. This ensures smoother returns throughout the economic cycle.

Furthermore, buying into a fund offers investors the opportunity to take advantage of many growth opportunities. A higher weighting of growth stocks means that this fund has performed better than a comparable fund FTSE 100 ETF over the past twenty years.

A large weighting in the financial sector (44.8% of the total weighting) could lead to the fund performing better during recessions. But I’m confident it can still deliver excellent returns for long-term investors. It’s worth serious investigation, in my book.