Every adult in the UK now has a brand recent ISA allowance, which allows them to save or invest up to £20,000 in the 2026/27 tax year.

There are two main ways to place money in a duty-free package. The first is a Cash ISA, which is actually just a savings account, but with no tax on the interest. The second way is through a Stocks and Shares ISA. On A motley foolis the one we prefer. This is because history shows that over the long term, stocks provide a much higher return than cash investments.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Cash or stock, there is only one winner

New research from Investing Insiders shows that over the last 10 years the average return on stocks and shares ISAs has averaged 9.5% a year, compared with just 4% for Cash ISAs.

My data shows that if someone had £10,000 in a Stocks and Shares ISA and invested a further £5,000 a year for 10 years, they would end up with £109,975. In contrast, in a Cash ISA they would have just £77,234.

The performance gap widens over time. They would have £176,757 in cash after 20 years. That’s less than half of the £357,735 they could get from the shares (assuming these growth figures hold up).

A Cash ISA is a great place for short-term savings, but for long-term wealth a Stocks and Shares ISA is better. So how substantial of a pot does an investor need to generate an income of £250 a week, making a total of £13,000 a year? There is a basic way to calculate this, known as the 4% rule. This means that if you withdraw a certain percentage of your portfolio each year, your capital should never dehydrated up. Using this, our investor would need £325,000.

However, if they invested in dividend stocks with an average yield of 5% per annum and took this as their income, they would need just £260,000.

Land Securities has high performance

In fact, it is possible to achieve much higher efficiency than 5%. Real estate investment fund Earth Security Group (LSE: LAND) yields an impressive 7% annually. REITs have tax advantages because they do not pay corporate income tax, provided they distribute at least 90% of their taxable income to shareholders.

Land Securities, or Landsec as it is often called, runs a commercial property portfolio including offices, shopping centers and retail parks. Although it is an established blue chip in the FTSE 100, it has had a complex run of tardy, like the rest of the REIT sector.

The work-from-home trend during the pandemic hit demand for offices, while the subsequent cost of living crisis hit brick-and-mortar stores (as did e-commerce). Higher interest rates have raised borrowing costs and made it more complex to sell real estate at a profit.

At the beginning of the year, the situation looked more promising as investors expected interest rates to fall, but the war in Iran thwarted plans. Landsec still looks good with a price-to-earnings ratio of 11.6 and is worth considering for the long term. Investors should only buy within a broader portfolio of stocks to spread risk.

Stocks can be volatile in the low term, but that’s the price investors pay for higher returns. And with any luck, a higher retirement income as well.