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Cash ISA vs Stocks and Shares ISA: which is best?

Learn more about saving and investing in ISAs.

If you’re looking for a tax-efficient way to grow your savings, then an Individual Savings Account (ISA) is definitely a great choice.

But which one should you go for? There are several types of ISA available to you.

We’re going to look at the differences between a Cash ISA vs a Stocks and Shares ISA to help you decide which one is right for you.

What is a Cash ISA?

A Cash ISA is a savings account in which you earn tax-free interest. 

You know what return you will receive on your money, as Cash ISAs have a set interest rate (although your provider can change this rate). 

As your money is not invested, there is no risk that you will lose money. However, if the interest rate is lower than inflation, the amount your money can buy will gradually reduce over time.

Cash ISA: Benefits and things to consider


  • Low risk - Cash ISAs provide security as you cannot get back less money than you put in. They are ideal if you want to save money without taking any risks.
  • Short-term - Cash ISAs are typically more suitable than Stocks and Shares ISAs for short-term saving. For example, if you are saving for a new car or for emergency funds that you cannot afford to lose.
  • Instant access - Like in a Stocks and Shares ISA, you can withdraw money from most Cash ISAs whenever you need to - but there may be a penalty if you do. 

Things to consider

  • Rising inflation - Inflation influences the Bank of England’s base rate, which can in turn affect the interest rates you’ll receive from a Cash ISA. If your interest rate is lower than inflation, your balance might be increasing but your money will actually be worth less over time.
  • Low interest rates - Interest rates over the last decade have been low and haven’t always kept up with inflation. Making Cash ISAs a less popular way to grow your savings.
  • Lower returns - While you’re guaranteed to receive some interest, making Cash ISAs feel like a safer bet, you can’t earn more than the interest rate of your account. There’s no real limit to the growth you can achieve in a  Stocks and Shares ISA. A Cash ISA by comparison could bring you lower returns.

What is a Stocks and Shares ISA?

A Stocks and Shares ISA is a tax-efficient investment account. Rather than receiving a fixed rate of interest, you invest your money in a range of investment options such as shares, funds, investment trusts, ETFs and bonds. Your returns depend on how your investments perform over time. 

Any profit you make on your investments is tax-free and UK dividend income is also tax-free. 

Stocks and Shares ISA: Benefits and things to consider


  • Potentially beat inflation - With a Stocks and Shares ISA, there’s no limit on how much your investments could grow. This all depends on the investments you choose and how they perform. You’re not restricted to the interest rates of your Cash ISA. You have potential to beat the rate of inflation and provide real returns.
  • Long-term, higher returns - A Stocks and Shares ISA is better suited to long-term investing. Ideal if you’re looking to grow your savings over time. Investing for the long-term means your investments are more likely to recover from any unexpected drops in market conditions. But you always have the freedom and flexibility to sell an investment and reinvest into others that could bring you a better return.
  • Instant access - Life can be unpredictable, and you can’t always plan when you might need to use your savings. Not all Cash ISAs are made equal, and fixed Cash ISAs require you to lock in your savings to get the best rates. But a Stocks and Shares ISA lets you sell your investments and instantly access your cash, whenever you might need it.

Things to consider

  • Higher risk - Whilst the potential for return is greater with s Stocks and Shares ISA, so is the risk. If you’re investments don’t perform as well as you hope, you could come out with less than you put in.
  • Not for a rainy day - It the investments you choose rise in value quickly, it is possible to make a return over a short period of time. But it’s unpredictable and you can’t rely on that happening. Investing in an ISA should be for longer term savings that you don’t need access to, for example growing a rainy day fund.
  • More effort - Using a Stocks and Shares ISA to grow your savings means you’ll need to put some effort into researching which investments to choose. Not only that, but you’ll need to put in some time to keep an eye on those investments and deciding when the right time to sell might be. You can reduce this though, by picking an ISA that’s been designed by experts.

How do you want to invest?

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What is the difference between a Cash ISA and a Stocks and Shares ISA?

Cash ISAs and Stocks and Shares ISAs are the two most common types of ISA, or Individual Saving Account. The key tax benefit of any type of ISA is that your gains are free from Income Tax, Capital Gains Tax and tax on UK dividends.

Tax-fee profit 

The main difference between the two types of account is how you can earn tax-free profit on your money. In Cash ISAs, you only receive interest on your cash savings. You can earn interest in some Stocks and Shares ISAs, but you'll mainly want to invest your money where it'll grow, or fall, depending on how well your investments perform.

Long vs short-term

Cash ISAs tend to be more suitable for short-term saving while Stocks and Shares are more suited to long-term investment. Therefore, it is a good idea to think about what you are saving for first if you are choosing between them. 

If you think you will need to withdraw money in the next few years, then the security of a Cash ISA might be more suitable. Investing carries more risk in the short-term, as a sudden dip in the market could leave you with less money and unable to afford your financial goals. 

Stocks and Shares ISAs are more suitable for long-term investing if you are looking to grow your money and get potentially greater returns. But you should be prepared for the risk of losing money.

Cash ISA vs Stocks and Shares ISA Comparison

Cash ISAStocks & Shares ISA
Can I contribute up to the full £20,000 ISA allowance?✔️✔️
Can I invest in the stock market?✔️
Can I earn interest on your cash?✔️✔️
Higher risk but potentially higher returns?✔️
Better for long-term (5+ years) savings?✔️
Better for saving for the short-term?✔️

Can I have both a Cash ISA and a Stocks and Shares ISA? 

You can have a Cash ISA and a Stocks and Shares ISA, so you don’t have to choose between them. 

Your £20,000 annual allowance is spread across each ISA you have. Therefore, you can split your allowance however you choose to. 

For example, you could invest £10,000 per year in each. Alternatively, you could prioritise one type of ISA but still save in a Cash ISA and invest in a Stocks and Shares ISA.


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