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.
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.
Recent ISA reforms mean that saving into a Cash ISA is set to change. The government has announced that from 6 April 2027 it will introduce a £12,000 annual cash ISA subscription limit for investors under 65, while remaining at £20,000 for those aged 65 and over. To prevent people getting around the new rules, under-65s will not be able to transfer money from a stocks and shares ISA - or an Innovative Finance ISA - into a cash ISA. However, it will still be possible to transfer money in the opposite direction.
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.
How Stocks and Shares ISAs will change
ISA reforms will also affect Stocks and Shares ISAs from 6 April 2027. While the overall ISA allowance will remain at £20,000, the government plans to introduce a 22% charge on any interest paid on uninvested cash held within Stocks and Shares ISAs (and Innovative Finance ISAs).
The aim is to stop people using a Stocks and Shares ISA as a way to hold large amounts of cash tax-free after the lower Cash ISA limit comes in.
The government is also looking at “cash-like” investments like money market funds and whether these should count as qualifying investments within a Stocks and Shares ISA. It has now confirmed that investors can hold money market funds in investment ISAs and enjoy tax-free returns. However, money market funds cannot represent 100% of your portfolio. In this scenario, they will be classed as “non-qualifying investments”.
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.
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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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