Investing in cash in a Stocks and Shares ISA: the basics

With interest rates sticking at 3.75% and continued geopolitical uncertainty, it’s no surprise some investors are feeling cautious.

Even so, that shouldn’t put you off making the most of your ISA allowance as and when you can. A Stocks and Shares ISA doesn’t mean you have to dive straight into the stock market - you can also invest in cash funds (also known as money market funds), giving you a lower-risk way to shelter your money tax-efficiently while you decide your next move.

However, the rules around holding cash and “cash-like” investments (like money market funds) inside both Cash ISAs and Stocks and Shares ISAs are due to change from 6 April 2027, so it’s worth understanding what this could mean before using cash funds as a long-term home for your money in a stocks and shares ISA.

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So, what exactly are cash funds?

Think of cash funds like having a piggy bank that’s managed by professionals. Instead of your cash sitting idle, these cash funds invest your money into very safe, short-term financial products. These products can be things like treasury bills (short-term loans to governments), certificates of deposit (short-term savings at banks), or short-term bonds from reliable governments and companies.

Imagine, you’ve saved £100,000 to do an extension on your house. Your plans are waiting approval, and your builder can’t start on your project for at least nine months. You want to keep your money safe as you need every penny and easily accessible, but you’d like to earn a little interest, too. A cash fund within a Stocks and Shares ISA could offer safety, flexibility and modest returns.

Why would you invest in a cash fund in a Stocks and Shares ISA?

Here are a few reasons why investors buy cash funds.

1. Keeps your money relatively safe

Unlike investing in shares (where the value can rise and fall quite dramatically) cash funds are much steadier. They're good for protecting your savings when the market gets bumpy.

That said, relatively safe doesn’t mean risk-free. Cash funds can still be affected by interest rate changes, market conditions and the financial strength of the institutions they invest in.

2. Provides easy access to your money

If you urgently need your money, it typically takes up to seven working days to access it, depending on the fund you've invested in. Many of the high street’s competitive savings accounts require you to lock your money away for a fixed time.

3. Helps balance your investments

Let's say your portfolio holds a range of riskier assets - such as shares or funds that contain property or equities in them. Holding some cash funds can help balance things out, reducing your risk if the stock market has a rough patch. It's good practice not to put all your eggs in one basket, otherwise known as diversification.

4. No UK tax on growth until 6 April 2027

Under current rules, any interest or returns your cash earns within a Stocks and Shares ISA won't be taxed. So, if you're thinking of keeping some money safe temporarily while you plan your next move, this is a way to do it without worrying tax... for now. From 6 April 2027, the government plans to introduce new rules around cash and “cash-like” holdings in Stocks and Shares ISAs. You can read more about the ISA rule changes below.

5. Offers reliable (but modest) returns

Cash funds are at the lower end of the risk / reward spectrum. It means they don’t have the same potential for growth as investments at the higher end of the spectrum (such as shares), they do offer slow and steady growth, giving you peace of mind.

Other points to consider when thinking about investing in cash funds

Cash funds have some great benefits, but it’s also worth keeping the following in mind.

Lower growth than other investments

In the long run, cash funds might struggle to beat inflation - by much, if at all. Inflation is when things slowly get more expensive over time, reducing what your money can buy. This means if you leave your cash in these funds for many years, it might not grow enough to keep up with rising prices.

Check the fees

Some cash funds charge management fees. Make sure to look for a fund with low fees, because higher fees can eat into your profits.

Interest rates matter

When interest rates go up, cash funds typically offer better returns. But if interest rates drop, your returns will probably shrink, too. 

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ISA rules change from 2027

From 6 April 2027, the annual cash ISA limit will fall to £12,000 for savers under 65, while the overall ISA allowance will remain at £20,000. Only savers who are 65 and over will be able to use the full £20,000 ISA allowance in a cash ISA.

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, they’ll still be able  to transfer money in the opposite direction.

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 confirmed that investors can hold money market funds in investment ISAs and enjoy tax-free returns. However, money market funds cannot represent 100% of their portfolio. In this scenario, these funds will be classed as 'non-qualifying investments'.

Simple steps to investing in cash funds in a Stocks and Shares ISA

1. Open a Stocks and Shares ISA - If you don't already have one, you'll need to open a Stocks and Shares ISA. Learn more about opening a Stocks and Shares ISA.

2. Add money to your ISA - the next step is to pop some money into your account. You can either invest a lump sum or set up a regular savings plan. Login in to add money.

3. Choose a cash fund - here's a list of the cash and money market funds that we hold on our platform (as at March 2026). The accumulation funds are listed below, but note we also have Income versions for many of these funds. Make sure you do your research before picking one that’s right for you. View our Investment Finder for the latest funds.

1. abrdn Sterling Money Market Fund
2. BlackRock Cash Fund
3. Fidelity Cash Fund
4. Invesco Money Fund UK
5. Legal & General Cash Trust
6. Royal London Short Term Money Market Fund
7. Royal London Short Term Fixed Income
8. Royal London Short Term Fixed Income Enhanced
9. WS Keyridge Sterling Liquidity Fund

4. Invest

Once you've chosen a cash fund, you need to buy it. Log in to your account, click on invest now, then ‘buy’ and then ‘add investments’. You can then search for your chosen cash fud. Log in to your account to buy a cash fund.

5. Monitor and manage your investments

For now, cash and cash-like investments can still be held within a Stocks and Shares ISA, with any income or gains sheltered from UK tax. But with the rules changing from 6 April 2027, it’s worth keeping a close eye on how these changes could affect cash or cash-like holdings. It’s also worth thinking about whether switching to other investments might offer more room for potential growth within your ISA, if and when it suits you.

• Secure your ISA and Pension allowances with cash

• Read: Fund ideas to de-risk your portfolio
• Read: 5 reasons to worry less about your pension as markets fall
• Read: How to build an investment portfolio

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Tax treatment depends on individual circumstances and all tax rules may change in the future. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Overseas investments will be affected by movements in currency exchange rates. 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 ofFidelity’s advisers or an authorised financial adviser of your choice.