Personal Finance

Cash ISAs vs Stocks & Shares ISAs

Cash ISAs vs Stocks & Shares ISAs

You have probably heard of an ISA, especially since the Budget in April as the Chancellor introduced a new form of ISA that everyone is talking about (The Lifetime ISA), and you may think you know what an ISA is. But did you know that there are two main types of ISA: a Cash ISA and a Stocks & Shares ISA? Which of these you choose can depend on how long you wish to invest and your attitude towards risk.

The main reason people open an ISA is the ability to shelter up to £15,240 from the taxman, no matter which type of ISA you choose. However, there are key differences between each type. In this article we will be focusing on the two most popular forms of ISA and the similarities and differences between the two.

Investing in a Stocks & Shares ISA differs to investing in a Cash ISA. The latter is a tax-free savings account where the former allows the depositor to invest in several investments including investment trusts, single company shares and more. This means that you have control over where your money is invested and to what level of risk.

Cash ISA

If you’re relying on using your cash in the short-term, within five years, then a Cash ISA may be the best option for you. These ISAs can be purchased from banks and building societies, however, the interest rates on these ISAs are not great. In fact, finding one with a rate higher than the inflation target of 2% may prove difficult.


  • Tax-free growth
  • Open to all UK residents over 16 years of age
  • Instant access to account, but only for those with a variable rate account. Fixed rate investors will usually have to wait 8-10 days to withdraw cash

However, with a Cash ISA, you have no investment choice. The interest received on your savings is set at either a fixed or variable rate.

  • Low interest rates; often below inflation so your money could lose value over time
  • Some providers offer introductory offers, however these will expire and then you’ll be left with the not so attractive interest rate.

Stocks & Shares ISA

If you’re looking for a higher return from your investments, then a Stocks & Shares ISA could be a good option. This is ideally for the longer term investment, of five years or more, as the markets can fluctuate, which is where the risk factor falls into play. This is why it is important to choose a level of risk that you’re comfortable with, but that can still help you reach your goal.

It is also worth noting that if funds are left within a Stocks & Shares ISA for several years, then you allow time for the markets to recover following any dips. The longer you leave your funds invested, the greater potential you have for returns.

The average Stocks & Shares ISA rate for 2014/15 had a growth of 7.4% which is a great deal higher than the growth of a Cash ISA at 1.53%.


  • Tax-efficient as no Capital Gains Tax or income Tax to pay on profits.
  • Don’t need to report ISAs on tax returns
  • Can potentially receive a higher return than if funds were in a Cash ISA
  • Can choose from a range of investments including trusts and individual shares.

However, the original value you invest could go up or down, and so you risk getting less back.

Benefits of Tax Relief

Opening an ISA can be a far better way of investing your money than opening a savings account at your local bank as ISAs are essentially a wrapper that protects your investments from Capital Gains and Income Tax.

This means that your investments will grow faster over time as they are not diminished by HMRC. For example, Capital Gains Tax is a tax on any profits you make from selling any assets such as investments. For the current tax year, this is charged at 10% for basic rate tax payers and 20% to higher rate taxpayers.

Overall, if you’re looking for a short-term investment and are happy with a lower return, then a Cash ISA may be a suitable option. If you are investing for a long-term goal and the potential for a higher return is most important, then a Stocks & Shares ISA could be a good investment for you.

Learn More about Our Stocks & Shares ISA

Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.