Launched in 1999, Individual Savings Accounts (aka ISAs) are, generally speaking, an easy concept to understand.
But with so many different types — Cash and Stocks and Shares being two of the more popular ones — knowing which to go for isn’t always so straightforward.
With a Stocks and Shares ISA, for example, you might be wondering whether your money’s invested in just stocks and shares — or other things like bonds, too?
What about the ‘cash’ in Cash ISA? Does that mean you can withdraw money from a cash machine?
And, when it comes to growing your money on a long-term basis, is it a matter of Cash ISA vs Stocks and Shares ISA — or having both at the same time?
Well, this article is here to answer all those questions and more, helping you decide which one might be right for you in the process.
- What is a Cash ISA?
- What’s a Stocks and Shares ISA?
- Benefits of each
- Considerations
- Can you have a Cash ISA and a Stocks and Shares ISA?
- Can you transfer a Cash ISA to a Stocks and Shares ISA?
- Cash ISA vs Stocks and Shares ISA: which is best for me
What is a Cash ISA?
Available to UK tax residents aged 18 or over, a Cash ISA is a savings account with no capital gains or income tax to pay on your money as it grows.
Generally geared towards short to medium-term saving, they’re a ‘safe’ option for your money because they offer specific interest rates — and guaranteed returns.
You can pay into a Cash ISA as often as you want. However, there is a limit on how much you can contribute: you can currently save up to £20,000 each tax year (a figure known as your ISA allowance).
What is a Stocks and Shares ISA?
Because it’s part of the ISA family, a Stocks and Shares ISA lets you save up to £20,000 each year without having to pay any capital gains or income tax. But please be mindful that the allowance applies across all ISAs combined—for example, you could split £10,000 between a Cash ISA and a Stocks and Shares ISA, but not have £20,000 in each.
When comparing a Cash ISA vs Stocks and Shares ISA, the most important difference to understand is how your money grows.
With a Stocks and Shares ISA, your money is invested in stock markets and assets (which is why it’s also referred to as an Investment ISA). These markets might be indexes like the FTSE 100 and S&P 500, with assets including shares, bonds, and property.
As markets rise or fall, so do the value of your investments, meaning you could get back less and more than you put in. To learn more about how a Stocks and Shares ISA works, click the banner below to get started.
Benefits of a Cash ISA vs Stocks and Shares ISA
Despite their similarities, the differences between a Cash ISA vs Stocks and Shares ISA mean they both come with distinct benefits.
Benefits of a Cash ISA
- Cash ISAs = no tax to pay on any interest you earn.
- They’re a risk-free option with guaranteed returns.
- You can open as many Cash ISAs as you want.
- Easy Access Cash ISA = access your money anytime, with no fees.
- A Flexible Cash ISA allows you to withdraw and redeposit funds within the same tax year without impacting your annual allowance, as long as you stay within the £20,000 limit.
It’s worth noting that Wealthify’s Cash ISA is both easy access and flexible.
Benefits of a Stocks and Shares ISA
- Like a Cash ISA, you don’t pay any tax on interest with a Stocks and Shares ISA.
- Having your money invested could lead to higher returns than a Cash ISA, but you could also get back less than you invested.
- Access to stock markets = more choice and control over your money’s growth.
- Managed Stocks and Shares ISA = no investment experience needed.
- Flexible Stocks and Shares ISA = the ability to withdraw and redeposit funds within the same tax year without affecting your allowance.
Wealthify’s Stocks and Shares ISA is both flexible and managed, meaning you choose from a selection of pre-built investments — then we take care of everything else!
Cash vs Stocks and Shares ISA considerations
As with all financial decisions, it’s important to consider every aspect of a product, not just the benefits. For example, the amount you can save in both a Cash ISA and Stocks and Shares ISA is limited by your annual ISA allowance.
Cash ISA considerations
- Traditional savings accounts might provide higher interest rates.
- Personal savings allowance = you can already save up to £1,000 in tax-free interest.
- Inflation could negatively impact the real growth of your Cash ISA savings.
- Cash ISAs might not be the best option for your long-term savings.
Stocks and Shares ISA considerations
- Due to stock market volatility, the value of your money can go down.
- More often than not, you’ll have to pay management and transaction fees.
- They usually have a recommended minimum investment period of 5 years.
- As a result, Stocks and Shares ISAs are generally better for long-term goals.
Can you have a Cash ISA and a Stocks and Shares ISA?
Absolutely. In fact, if you are in a position to pay into both, then kudos to you!
However, doing so comes with one important caveat: you can’t exceed your annual £20,000 ISA allowance.
As things stand, you can have as many ISAs of each type as you want (excluding Lifetime ISAs and Junior ISAs), splitting your annual allowance between them however you like.
So, let’s say you’ve got £5,000 you’re looking to grow.
For the current tax year, you’ve already managed to save £18,000 in a Cash ISA — and now feel ready to start investing on top of this.
Of that £5,000, however, you’d only be able to invest £2,000 in a Stocks and Shares ISA; combined with your Cash ISA’s £18,000, a penny more would take you over your £20,000 allowance.
If you still wanted to invest that extra £3,000, then you might consider a General Investment Account.
Can you transfer a Cash ISA to a Stocks and Shares ISA?
As well as being able to transfer a Cash ISA to a Stocks and Shares ISA, you can also do the same with a Stocks and Shares ISA to a Cash ISA.
But why transfer a Cash ISA to a Stocks and Shares ISA in the first place?
Let’s say you were a little underwhelmed by your Cash ISA’s returns and – in pursuit of potentially higher returns – felt ready to handle the ups and downs of investing.
Well, in order for your money to gain that long-term exposure to the financial markets, you’d move it to a Stocks and Shares ISA.
You can learn more about the other benefits and considerations on our dedicated ISA transfer guide or click the banner below to visit our ISA transfer page.
Cash ISA vs Stocks and Shares ISA: which is best for me
Because everyone’s financial needs and goals are different, the simple answer to this question, is that there’s no right or wrong answer in the first place! However, as a rule of thumb:
- With its guaranteed returns, a Cash ISA might be better suited for short to medium-term saving.
- With its exposure to financial markets, a Stocks and Shares ISA has the potential for higher returns than a Cash ISA — making it a more feasible option for your long-term goals.
Thanks to our Easy Access Cash ISA and Stocks and Shares ISA, we’re proud to be able to offer both here at Wealthify.
And, with our easy-to-use app, managing more of your money in one place is simpler than ever — meaning you don’t have to choose between the two!
Want to learn more about the benefits of a Wealthify Stocks and Shares ISA? Read our article: Why Choose Wealthify for Your Stocks and Shares ISA? to see how we can help you grow your investments.
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
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