Cash ISAs vs. Stocks and Shares ISAs: at a glance
- What do I need to know? Cash ISAs and Stocks and Shares ISAs both provide ways to grow your money tax-free, but they differ in how you generate returns and the level of risk.
- What does it mean for me? You could lose out on valuable tax-free growth if you don’t open ISAs, especially if you’re a high earner.
- Why does it matter? Balancing Cash ISA and Stocks and Shares ISA accounts can help you grow your wealth in the immediate and long term.
In the UK, your Personal Savings Allowance (PSA) lets you earn up to £1,000 in tax-free interest on your savings, depending on your annual income. But higher earners often don’t qualify for a PSA, making ISAs (Individual Savings Accounts) a popular way to benefit from tax-free returns.
Cash ISAs and Stocks and Shares ISAs are the two most common types used for general savings and investments. They both help you grow your wealth and earn tax-free savings without affecting your PSA. But each account type offers different benefits depending on your priorities.
In this guide, you’ll learn the key benefits and drawbacks of Cash ISAs and Stocks and Shares ISAs, and how a balance of both can grow your wealth.
What’s the difference between Cash ISAs and Stocks and Shares ISAs?
Individual Savings Accounts (ISAs) are a type of bank account that shields your earnings from tax. You can invest up to £20,000 across all the ISAs you hold in a single tax year, though there are expectations that the rules will change in the coming years.
ISAs are a type of ‘tax wrapper’. This means the account shelters your money from Capital Gains Tax (CGT), Income Tax, and dividend taxes that would normally apply to interest, income, and profits.
If you’re named as the beneficiary of a loved one’s ISA in a will, then you’ll inherit their savings. The rules if you’re a spouse or civil partner can be complex, so consider checking the guidance on HMRC and speaking with a financial adviser if you’re unsure how they’ll affect you.
Cash ISAs and Stocks and Shares ISAs are both protected by the Financial Services Compensation Scheme (FSCS) up to £85,000. While the balance within your Stocks and Shares ISA is covered by the FSCS, investing always comes with a degree of risk. So, you may lose money if the value of your investments decline.
Cash ISAs
A Cash ISA works similarly to a savings account. There are different types of Cash ISA that usually offer a higher rate of interest in exchange for reducing your access to funds. For example, you can open accounts that are:
- instant access: you can withdraw your funds at any time.
- fixed-rate: you earn an agreed rate of interest over a set period, usually on the understanding that you don’t withdraw your money.
Fixed-rate accounts can be useful for short-term savings, as they’re considered low risk with predictable returns. You’ll earn the same rate of interest regardless of what happens in the market, such as changes to the base rate.
Cash ISAs can sometimes offer lower returns than regular savings accounts. So, it’s important to weigh up the tax-free benefits against potentially higher rates when deciding how to structure your savings.
Stocks and Shares ISAs
While Cash ISAs grow your funds through interest, Stocks and Shares ISAs aim to increase your wealth through capital growth and dividends from stocks, shares, and bonds. Depending on the account, you can either choose where to invest your money yourself or pay for your provider to invest your money on your behalf.
Because of this, Stocks and Shares ISAs, also known as Investment ISAs, usually carry a much higher risk than a Cash ISA. The value of your investments can fluctuate, and you could lose the money you invest. It can also take slightly longer to withdraw your money, as your bank or provider will need to sell your stocks and shares first.
There are ways you can try to limit your risk when investing in Stocks and Shares ISAs. By investing consistently in index funds, it may be possible to build wealth over the long term. This is because indexes track the performance of the top companies within a set category. For example, the FTSE 100 tracks the performance of the top 100 companies listed on the UK stock market.
But it’s important to note that there are no guarantees.
Cash ISA vs. Stocks and Shares ISA: which is right for me?
You don’t have to choose one or the other. But it is useful to consider the advantages of both, so that you can build a savings strategy that works best for you.
Below, we look at how the features of Cash ISAs and Stocks and Shares ISAs compare:
Feature | Cash ISA | Stocks and Shares ISA |
Low risk | Yes | No |
Predictable returns | Yes | No |
Highest earning potential | No | Yes |
Short-term savings | Yes | No |
FSCS protection | Yes | Yes |
Longer-term savings | No | Yes |
Balancing both account types can give you access to cash as and when you need it, while increasing the value of your savings through long-term growth due to compound interest.
Can I have a Cash ISA and a Stocks and Shares ISA at the same time?
You can have both a Cash ISA and a Stocks and Shares ISA at the same time.
Before 2024, you were prevented from opening multiple ISAs in the same year if they were the same type of account. You can now open as many ISAs as you like, provided you don’t exceed your annual funding limit.
For example, with two accounts and an annual ISA allowance of £20,000, you could fund £10,000 in a Cash ISA and invest the rest in your Stocks and Shares ISA.
What other ISA types are available?
There are five types of ISAs available in the UK, each with a different purpose. Alongside Cash ISAs and Stocks and Shares ISAs, you can also open:
- Innovative finance ISAs (IFISAs): These allow you to lend money to individuals or organisations in exchange for interest.
- Lifetime ISAs (LISAs): Designed to help you save for your first home or retirement, with a 25% government bonus on contributions you make up to £4,000 per year.
- Junior ISAs (JISAs): A long-term savings account for under 18s, ideal for gifting money to your child so their savings can grow tax-free.
Are Cash ISAs worth it?
Cash ISAs can offer stability, especially in uncertain economic times, by protecting your savings from tax. As part of a balanced portfolio, a range of Cash ISAs can form a low-risk way to enjoy tax-free growth that isn’t impacted by wider market conditions that may affect stocks and shares.
Are Stocks and Shares ISAs worth it?
Over the long term, index funds have historically outpaced inflation to deliver higher returns than savings accounts. But your investments can fall in value at any time, and returns aren’t guaranteed.
The balance of your Stocks and Shares ISA is protected by the FSCS up to £85,000. This means that if your provider goes out of business, the funds you have in the account will be reimbursed up to that limit.
You should also consider costs such as platform, fund management, and trading fees, which can impact your returns over time.
Managing multiple Cash ISAs
If you’ve opened multiple ISAs over a handful of years, managing your money can become difficult. This is because you’ll need different passwords for each account you hold with multiple providers.
Flagstone’s savings platform is designed to help you open and manage multiple accounts.
From January 2026, you’ll be able to open and manage 10+ Cash ISA accounts paying high levels of interest on your cash. You can transfer in your balances from other ISAs with no extra cost, and no limit on the amount you move to the platform.
One tax wrapper, multiple Cash ISAs.
Invest in ISAs for tax-free savings
Beyond the Personal Savings Allowance, ISAs are one of the few ways to generate tax-free returns on your savings. So, maximising your returns on this opportunity each tax year can make a real difference to your long-term wealth.
Since the annual ISA allowance is capped at £20,000, it’s important that you plan how to use it. You could open a Cash ISA, a Stocks and Shares ISA, or a combination of both, splitting your allowance between the two.
Ultimately, choosing the right approach depends on whether you prioritise low-risk and predictable earnings or a higher risk with higher potential returns.
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