30 Jan 2024

Cash ISA vs stocks and shares ISA – what's the difference?

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?

Man on mobile

Want to learn more about investing?

We know that many people are nervous about investing. Read about what to consider before taking that first step.

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: Cash ISA 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
  • as of 6 April 2024 you can pay into more than one of each kind in the same tax year
  • there’s usually no fixed term for them – you can hold either kind of ISA for as long as you want to
  • you have to be 18 or over to open one
  • 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 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.

Ready to start investing?

Our Stocks and Shares ISA makes investing simple. Find out how you can start from just £20 a month.

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. 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?

Broadly speaking:

  • 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.

What’s next?

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:

Related articles

Women on laptop

Investing for beginners

If you’re new to investing, our guide aims to explain the jargon, help you decide whether a stocks and shares ISA is the right investment for you, and set you on the road to successful investing.
Women on sofa

Types of ISA

There are five different types of ISA in the UK. We explore the different ISA types to help you decide which is best for you.
Man with baby

What’s the best ISA for me?

Looking for the best ISA? We'll help you understand how to compare ISA rates and understand cash and stocks and shares ISAs.

Sign up to our newsletter

Subscribe to our newsletter for tips on how to make the most of your money now, and in the future.

Our team hand picks a selection of our latest articles and stories that we think you’ll find interesting. Subscribe to our newsletter and have the opportunity to enter exclusive prize draws, be invited to share your own stories, and be kept updated with tips and tricks to help you manage your finances.

By providing your email address you're giving consent for us to send you emails with news, information and offers on the products and services provided by Legal & General. Legal & General take your privacy seriously; this is why we never share your personal details with anyone else for their own marketing purposes. You can opt out of these emails at any time. Read our privacy notice to understand how we process your information.