The Cash ISA is a terrific product for saving money. All interest is tax-free, helping to boost the compounding process and leading to stronger capital growth compared with non-ISA accounts.

But it’s not all good news, as the Cash ISA can cost users the chance the make life-changing wealth. Want to know why?

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Cash crisis

The problem is that the ease and safety of these products leads people to over-rely on them. The result? Cash savers can miss out on making enormous returns by using their money in other ways. There’s even evidence these products could be costing people millions of pounds in lost wealth.

Financial planner Murphy Wealth put in a Freedom of Information request to HMRC last year. The aim was simple: to find out what the 4,850 ISA millionaires were holding as of the most recent datapoint (April 2022).

The request showed a whopping 94% of those millionaires earned their money with the aid of the stock market. Murphy Wealth says that “almost all ISA millionaires have built their wealth by holding stocks and shares… and no one has got to that status holding cash alone.”

The Stocks and Shares ISA offers the same tax benefits of its cash equivalent. But a focus on the stock market means a far superior long-term return averaging 8%–10%.

What’s the catch?

There’s no such thing as a free lunch, as they say. In this case, while the stocks ISA typically offers greater returns, this comes with the risk that an investor’s capital can fall.

Yet prioritising the Cash ISA comes with its own risks. I’m not talking about the remote danger of the bank and building society you’re saving with going bust. As we’ve seen, it can remove the possibility of generating meaningful wealth, and with it one’s chance of retiring in comfort.

Murphy Wealth sum it up perfectly for me. It said that “historically, a balanced portfolio of stocks and shares has delivered far higher returns over most reasonable timeframes, while cash savings have often failed to beat inflation.” A portfolio that fails to at least keep up with inflation essentially loses value over time.

Targeting a million-pound ISA

I hold money in a Cash ISA myself to spread risk. But most of my money goes into a diversified collection of stocks to help me make significant wealth.

Games Workshop (LSE:GAW) is a share that has ‘millionaire-maker’ potential written all over it. It’s one of my largest holdings, and it’s easy to see why: since May 2016, the company’s delivered an average annual return of 43.2%, reflecting both share price gains and dividends.

This FTSE 100 company sells miniatures and tabletop gaming products. Through heavy investment in IP, it enjoys brilliant pricing power and high margins that help supercharge earnings. Latest financials showed operating profit leap 11% during May-September.

Can Games Workshop shares keep outperforming though? I’m optimistic they can, even though growing competition poses a risk that can’t be ignored. Geographic expansion (especially in Asia) has further significant earnings potential, as does increased licensing of the firm’s IP for films and video games.