Cash ISA versus a Stocks and Shares ISA: the basics

Important information - The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

A Cash ISA and a Stocks and Shares ISA are two different approaches to putting aside money for the future, both of which are tax-efficient.

Both accounts get a little extra help from the government, as any gains you make are tax-free. One you ‘save’ in and one you ‘invest’ in.

Since 6 April 2024, you’ve been able to open more than one ISA in any given year. But if you’re paying into multiple ISAs, your payments can’t exceed the total annual ISA allowance - which currently sits at £20,000.

• Read about the ISA allowance 

A Cash ISA - typically lower risk, lower potential returns 

A Cash ISA acts like a savings account. As it’s a type of savings account, you can access the money more easily. Some people like to use a Cash ISA for short- to medium-term goals. 

It’s seen as a comparatively low-risk option with a fixed or variable interest rate, and because of this you can expect to see a lower rate of growth on your savings. Many investors like this approach as it sits comfortably with their attitude towards risk and it means there are no nasty surprises.  

Cash has given savers reasonable rates of return over the last couple of years (especially in relation to the risk they’re taking), as interest rates have remained higher for longer than expected. However, interest rates are falling - slowly.

Saving into a Cash ISA is now also set to change, as the government has announced that from 6 April 2027 it intends to introduce a £12,000 annual cash ISA subscription limit for investors under 65, while remaining at £20,000 for those aged 65 and over. It’s worth noting that these rules could be subject to change before implementation.

A Stocks and Shares ISA - typically higher risk, higher potential returns 

If you put your money into a stocks and shares ISA, you’re investing it.  Different assets (such as cash, bonds, shares and commodities - like property for example) carry different levels of risk.  

The level of risk you feel comfortable with, will largely depend on your personal circumstances and how long you’re investing for.

Investing is not a get rich quick method of saving. You should only invest if you’re willing to stay invested for at least five years. The longer you’re invested, the better chance you’ll have of riding out the inevitable ups and downs in the markets to take advantage of potential market growth over time.

• Learn about our Stocks and Shares ISA
• See our current offers to help make your money go further

You can choose from thousands of funds and individual shares, depending on your attitude towards risk. Whether you’re adventurous or cautious, it’s important to decide how much risk is right for you to achieve your investment goals.

• Get help with choosing investments
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Read more from our series:

• Investing versus saving: the basics
• Investing in cash in a Stocks and Shares ISA: the basics
• What is the FTSE 100? The basics