With interest rates at 5%, are Shares and Dividends ISAs still worth it?

Investing in Stocks and Shares An ISA has been one of the few tools available to British savers to build wealth over the past decade. After all, since interest rates were close to zero, savings accounts seemed out of the question. And bonds have failed to provide anything meaningful without going into low-quality assets.

Today, the situation is different. Strong interest rate hikes to combat inflation have made savings accounts attractive again. Even after the recent cuts, depositors can still enjoy close to 4%-5% risk-free returns at most banks.

So is there any point in investing in a Stocks and Shares ISA when Cash ISAs offer this improved return? Here's my take.

A safe way to build wealth?

Savings accounts are more profitable than the stock market when it comes to risk. Unless the facility suddenly rises, there is almost no risk in building wealth with these financial instruments. The same is true when comparing government bonds with NS&I.

Historically, UK shares have provided annual returns of around 8%. And so far this year, their performance has been better than usual. Obviously that's an improvement on what most Cash ISAs currently offer, however building wealth in the stock market comes with much greater risk. And the last few years, in particular, have been volatile.

So which is the better choice?

What is the purpose of the investment?

Knowing which financial vehicle to use right now depends on personal circumstances. Someone in retirement is probably better suited to stick to safe solutions. While a young investor with a long-term perspective may have the capacity to take on more risk.

In my case, I have the advantage of being in the latter category. However, instead of sticking strictly to one strategy, I use both. My emergency fund is in a high-interest savings account, while most of my wealth is tied up in a Stocks and Shares ISA.

Finding stocks to buy in an ISA

There are many different strategies that investors can use to build wealth in a Stocks and Shares ISA. Dividend stocks tend to offer stability and passive income compared to stocks that tend to have higher return potential.

Personally, I like to guide the way of growth. And one of my biggest positions right now Arista Networks (NYSE:ANET). The company designs and manufactures ethernet switches used by data centers – a critical component that powers the Internet.

As the amount of data flowing around the world has grown exponentially, managers have had little trouble keeping up with the demand. Subsequently, the shares have risen almost 500% since I invested in 2019. That's an average annual return of nearly 40% – well ahead of even the best savings accounts right now.

Of course, the journey hasn't exactly been smooth sailing, as there have been double digits falling along the way. Even today, this company continues to face strong competition from the likes of Cisco Systemsa bigger business with deeper pockets.

Still, I'm always cautiously optimistic. And with the opportunity to find high yield stocks like Arista, investing in the stock market remains my preferred way to build wealth despite the high risk.