Investing with an ISA: Your shield against inflation

If your savings are languishing in a cash account, earning you a miserable 1–2% interest, and inflation is still nipping at your heels, it’s time to look at your options. Enter: the Stocks & Shares ISA – your tax-efficient, inflation-beating superhero.

Why inflation matters

Inflation isn’t just an abstract economic concept - it has a very real impact on your everyday life and long-term financial wellbeing. At its core, inflation erodes the purchasing power of your money. When prices rise and your income or savings don’t keep pace, you're effectively getting less bang for your buck.

Let’s put it simply: If inflation is at 3%, something that cost £100 last year now costs £103. If your savings haven’t grown by at least 3%, you’ve lost money in real terms - even if the balance in your account hasn’t gone down.

This becomes a major issue when you leave large sums sitting in cash accounts with interest rates that don’t beat inflation. For example, if the interest rate on your savings account is below the current rate of inflation (3.5% as at April 2025[1]), your money is slowly shrinking in value.

Over time, even modest inflation can take a serious bite out of your financial plans:

• Retirement savings lose spending power if they’re not invested to grow above inflation.

• Savings for big goals (like a first home or children’s education) can fall short of the target amount needed.

• Fixed-income assets, such as bonds or annuities, may offer less risk but can be particularly vulnerable to inflation's erosive effect.

The bottom line? Inflation is a silent wealth killer, especially for passive savers. It rewards those who put their money to work through investing and punishes those who let it sit idle.

How investing helps you outrun inflation

If your money stays sitting in cash over a long period of time, historical evidence shows that inflation will eventually erode its purchasing power. Investing your money instead gives it the opportunity to grow with the stock market and gives it the best chance of keeping up with the cost of living.

To illustrate this point, we’ve looked back at the performance of cash versus investments over the last 10 years. If you’d put away a single £10,000 lump sum in 2015, how much would it have been worth by the beginning of 2025? And how much more or less would you have today if you’d done things differently?

The graph below shows you how cash has performed compared to stock market shares. For the purposes of this illustration, we've looked at the growth of a single £10,000 lump sum investment in cash and in two stock market indices: the FTSE 100 and MSCI World (you can read more about these below the image).

Cash vs stock markets, 2015-2025

It's clear to see that leaving your money in cash (pink) led to significantly less growth over the period between 2015-2025 than if you had invested in stock markets. And although the British FTSE 100 Index (blue) didn't perform quite as well as MSCI World (green), it still increased by a whopping £8,612 - compared to gains of just £1,599 from cash over the same time period.

Of course, these numbers look measly compared to MSCI World's impressive £18,497 gain on the initial £10,000 investment.

Why use an ISA to invest?