Putting your money into a cash ISA is a lot like putting it into a savings account. Your savings grow because your provider pays you interest on it. But when you put your money into a stocks and shares ISA, your provider invests it on your behalf. You’ll hopefully get a good return as your investments grow.
You’re probably asking yourself “stocks and shares ISA or cash ISA?” because you’re looking for a tax-efficient way of saving that’ll help your money grow. They can both help you with that – but in different ways, and with different pros and cons. So which one’s right for you?
Cash ISA or stocks and shares ISA?
The choice of stocks and shares ISA vs cash ISA comes down to your savings goals and appetite for risk. Is a stocks and shares ISA worth it? Will you be better off with a cash ISA? Our ISA chart will help you compare their different benefits.
As you work through it, don’t forget that these two types of ISA aren’t your only savings choices. In particular, another type of savings account may give you better interest rates than a cash ISA.
|Are you looking for:
|Stocks and shares ISA
|No risk of losing some of your money?
|Potentially higher returns?
|An ISA that’s generally better for up to five years of saving?
|An ISA that’s generally better for five years plus of saving?
|A way of saving without investing your money?
|Potential growth through investments doing well?
These two types of ISA also have a lot in common. Key shared features include:
- any payments into them will count towards your annual ISA allowance of £20,000
- there’s no UK tax to pay on any income or growth
- you can only open and/or pay into one of each kind in each tax year
- there’s usually no fixed term for them – you can hold either kind of ISA for as long as you want to
- in most cases, your money is not locked in – you can usually take some or all of it out whenever you want, although with a:
- fixed rate cash ISA you might have to pay a charge or even close your account to pull it out early
- stocks and shares ISA you might lose money if your investment’s lost value.
- inflation can hit them both:
- if it’s higher than your interest payments or your investments’ growth, your savings will lose value
- read our “How to protect your savings from inflation” article to find out more.
If you want to dig a little deeper, our Types of ISA article shares more information about these two and other kinds of ISAs.
And finally, remember that it doesn’t have to be an either/or choice. You’re free to mix and match different kinds of ISA. So for example you could start off with a Cash ISA. Then if you find you have some money you can save for longer, you could start saving into a Stocks and Shares ISA too.
Can I have a stocks and shares and a cash ISA in the same tax year?
Yes, you can pay into a stocks and shares and a cash ISA in the same tax year. They can be with different providers – they don’t have to come from the same place.
But your total payments into them can’t be more than your £20,000 annual ISA allowance. So you could pay £5,000 into one and £15,000 into the other, or £10,000 into each of them. However much you put into them (and any other ISAs you might have), it can never add up to more than £20,000 in a tax year. Don’t forget your ISA allowance is a “use it or lose it” allowance – you can’t carry any of it over into the next tax year.
Can I transfer a cash ISA to a stocks and shares ISA?
Yes, you can transfer some, or all, of the money from your cash ISA from the same or previous tax years into a stocks and shares ISA, although if you’re transferring current year subscriptions you will need to transfer them all. You won’t lose any tax benefits on the money you transfer. And transferring any amounts saved in previous years won’t count towards your annual £20,000 ISA allowance. You can learn more in our 'ISA transfer' article.
So for example, if you paid £1,000 into a cash ISA and then (in the same tax year) transferred it to a stocks and shares ISA, you would still have only used up £1,000 of that year’s ISA allowance. It wouldn’t be double-counted as £2,000.
Which is best - cash ISA or stocks and shares ISA?
- Cash ISAs are:
- Lower risk
- Usually better if you:
- are saving for less than five years
- don’t want to risk losing money because of stock market movements
- might need to take your money out at short notice
- Stocks & shares ISAs are:
- Higher risk
- Usually better if you:
- are saving for five years or more
- can afford for your money to lose some value because of stock market movements
- can wait until the market improves to take it out if it does lose value
But there’s no single right answer to the cash ISA vs stocks and shares ISA question. As we said above, it depends on your savings goals and appetite for risk. Understanding risk and knowing how much you’re comfortable with is an important part of choosing between them.
And it doesn’t have to be a choice between them – you’re free to go for both at the same time. Remember also that other savings options, like a standard savings account, can be more suitable to your personal circumstances and give you higher interest rates.
We hope that this article has helped you start to understand the difference between cash ISAs and stocks and shares ISAs. For more information, you can take a look at our: