Whether it’s stocks and shares or cash, the contribution limit for an ISA is £20,000 a year. Depositing this every year and earning 3% on your annual tax-free return makes you a millionaire after 30 years.

Finding this type of money to deposit is not simple. But for those aiming for a million, is it better to stick to cash or consider stocks?

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

A Cash ISA has a lot to offer. The chances of losing money are much, much lower than with a stocks and shares ISA, and there are some good interest rates available these days.

The best one I can find offers just over 5% a year – enough to turn £20,000 a year into £1 million over 25 years. The question, however, is how long it will last.

Cash ISAs have generated an average return of just over 1% over the last five years. At this level, getting to a million on £20,000 a year becomes virtually impossible.

I’m certainly not against cash ISAs – in fact, some of my best friends have them. However, I suspect that getting to a million will probably require a higher return than these things can offer.

Shares

In my opinion, the answer to whether a stocks and shares ISA is better is: it depends. Specifically, it depends on what someone plans to put in it.

There are plenty of shares I don’t buy because of the ISA. I think there are even some shares worse options than keeping your money in cash for the long term.

Fortunately, I don’t have to buy everything. I may stick with stocks that I believe will offer significantly better returns than cash over the next few decades – e.g Diageo (LSE:DGE).

Diageo currently returns 3.5% of its share price to shareholders in cash each year. While this is less than the current 5% offered by the most generous Cash ISA offer, it is significantly higher than the average of 1%.

Diageo

The threat of US tariffs on imported goods could be a major challenge for Diageo. This is the company’s largest market and it has no capacity to produce Scotch whiskey outside the UK.

However, I believe that investors who take a long-term view of the company’s stock should be able to ignore this difficulty. First, the potential for higher taxes may not be sustainable.

Similarly, Diageo has several leading brands in vital categories. And this should give it the opportunity to offset at least some of the effects of higher taxes by raising prices.

Ultimately, I believe the company’s strengths are sustainable. Therefore, I see concerns about problems that may last several years as an opportunity for an investment that will lend a hand me on my way to a million.

I’m aiming for a million

I suspect that becoming an ISA millionaire by sticking to cash will prove impossible in the next 30 years. Currently, returns are undeniably good, but history suggests this won’t last.

I think with a stocks and shares ISA the returns depend on the investments you choose. In my case, Diageo is a stock that I plan to continue buying to build wealth over time.