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Stocks and Shares ISA vs Cash ISA – Which is best?

If you’re looking to grow your wealth in a tax-efficient way, there are several different types of ISA to choose from. However, it isn’t always obvious which ones are right for you.

Two of the most popular choices are the Cash ISA and the Stocks and Shares ISA. Each has benefits and potential drawbacks, so it’s important to be able to make an informed decision when choosing.

To find out more about the decision between a Stocks and Shares ISA vs Cash ISA, read on to find out everything you need to know.

Key takeaways

  • The main difference between a Stocks and Shares ISA and a Cash ISA is the way in which you hold your wealth.
  • Cash ISAs offer a high degree of flexibility but may have a lower rate of returns.
  • Stocks and Shares ISAs offer higher returns but carry the risk of losing money.
  • You can have both types of ISA if you can’t choose between them.
  • It’s important to shop around for the best ISA provider.
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Important information - investment value can go up or down and you could get back less than you invest. If you're in any doubt about the suitability of a Stocks & Shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

What are the differences between Cash and Stocks and Shares ISAs?

As the names would imply, the main difference between these two accounts is the way in which you hold your money within the ISA tax “wrapper”.

Cash ISAs

With this type of account, you hold your wealth in cash. The main benefit of this is that you will be able to access your money at short notice in an emergency.

They are also one of the most popular types of ISA. According to government figures from the 2019/20 tax year, Brits collectively held around 13 million accounts, of which around 75% were Cash ISAs.

One of the main benefits of saving with a Cash ISA is that any interest that you receive is paid to you tax-free.

However, while they may have a high degree of flexibility, a drawback to saving with a Cash ISA is that these accounts typically have a low interest rate, which may not exceed the rate of inflation.

Stocks and Shares ISAs

With a Stocks and Shares ISA, you can invest your money in the stock market instead of holding it in cash. This can mean that it can grow much more effectively and potentially outpace the rate of inflation.

Like with their Cash ISA counterpart, any returns that your investments generate are paid tax-free, as the growth isn’t subject to Capital Gains Tax.

However, while investing your money can lead to greater returns than if you left it in a savings account, you are exposing it to risk. This means that whenever you put a portion of your wealth into Stocks and Shares ISAs and invest it, there is the chance that you could lose money and get back less than you put in.

To avoid this, it’s important to make sure that you invest for the long term, as short-term investments are more likely to lose money. Furthermore, you can also diversify your portfolio, but more on that later.

What are the pros and cons of a Cash ISA?


  • Cash ISAs are highly flexible, which can be useful if you need to access your money at short notice.
  • Interest is paid free from Income Tax.


  • Interest rates are currently fairly low, meaning you may not see much growth. This means the true value of your money may be eroded by inflation.

What are the pros and cons of a Stocks and Shares ISA?


  • Investing your wealth can generate stronger returns than holding it in cash.
  • You don’t have to pay any Capital Gains Tax on the growth of your investments.


  • You are exposing your wealth to risk when investing, meaning you may get back less than you paid in.
  • While investments can increase in value, they can go down as well.

Can I have a Cash ISA and a Stocks and Shares ISA?

If you’re struggling to choose between opening a Cash ISA or a Stocks and Shares ISA, you’ll be pleased to hear that you can have both. It’s important to remember that each type of account has its own strengths and drawbacks, so opening one of each can help you to grow your wealth in the most effective way.

There is no limit to the number of ISAs that you can have, but it’s important to remember that you can only subscribe to one of each type of ISA each tax year (6 April to 5 April). For example, you could open a Cash ISA and a Stocks and Shares ISA in the same tax year, but not two Cash ISAs.

Where can I open an ISA?

If you want to grow your wealth in the most effective way, it’s important to search around for the right ISA provider for you. For example, if you want to use a Cash ISA then you may want to find one that offers a competitive interest rate.

You can read my lists of the Best Cash ISAs and the Best Stocks and Shares ISAs by following the links.

How much can you contribute into an ISA?

Since ISAs have valuable tax benefits, there is an annual limit to how much you can contribute into your accounts every tax year, which is 6 April to 5 April. This limit is known as your “ISA allowance“.

In the 2021/22 tax year, this allowance stands at £20,000. It’s also important to remember that this doesn’t roll over, so if you don’t use it all by the end of the year, you will lose it.

This is why if you’re serious about growing your wealth, it’s important to maximise your ISA contributions.

Why is diversification so important?

As mentioned earlier, if you want to invest your wealth in a Stocks and Shares ISA, you will be exposing your money to risk as there is always the chance that you get back less than you put in. As well as investing for the long term, if you want to avoid this prospect, diversifying your portfolio can help you.

This is essentially the act of not putting all of your eggs in one basket. If your portfolio contains a well-balanced mix of assets from a range of different economic sectors and geographical regions, you’re less likely to be affected by a sudden stock market downturn.

For example, if you typically invest heavily in equities from energy companies, you could be overly exposed if there is a drop in the demand for fuel.

A well-balanced portfolio also typically includes a variety of investments from a range of asset classes. These might include equities, corporate bonds, gilts, and even real estate holdings.

By diversifying your portfolio, you can give yourself a greater sense of confidence when investing, as even if stock market volatility does occur, it could mean that only a small portion of your wealth will be affected by it.

Of course, if you want to lower your exposure to risk when investing, you may benefit from seeking professional financial advice. This can help you to make a properly informed decision with your wealth.

Is a Cash ISA safe?

In times of economic volatility, it’s understandable to worry about the risks of holding a large portion of your wealth in cash as, if your bank was to go under, you might lose your savings. This prospect may make you apprehensive about putting your money in a Cash ISA.

Thankfully, as long as your bank or building society is authorised and regulated by the Financial Conduct Authority, your money is protected by the Financial Services Compensation Scheme (FSCS).

Essentially, this scheme will protect up to £85,000 of your savings or investments if your bank or building provider collapses and can’t pay you. Knowing that this financial safety net is in place can give you more confidence when keeping your wealth in savings accounts.

However, it’s important to bear in mind that if you have more than this amount with a single provider, any cash over this limit won’t be protected and could be lost. Because of this, you may want to spread your money across a variety of different banks and buildings societies, so that you can receive the maximum protection.

What happens to your ISAs when you die?

While nobody likes to think about passing away, you may be wondering what happens to your tax-free ISA accounts if the worst should happen.

To put it simply, if you pass away and have a spouse or civil partner, they can inherit a one-off ISA allowance. This is known as your Additional Permitted Subscription (APS) and is equal to the value of your ISA on the day you die or when it’s closed, whichever is higher.

If you want to know more about this allowance, read my article all about the APS, covering everything you need to know.

Frequently asked questions

Is a Stocks and Shares ISA better than a Cash ISA?

A Stocks and Shares ISA can be better than a Cash ISA, but it depends on what you need. While Stocks and Shares ISAs can offer you stronger returns in the long term, in the short term you may be exposing yourself to unnecessary risk when using them. Meanwhile, Cash ISAs can be useful if you may need to access your money at short notice.

Is a Cash ISA better than a savings account?

A Cash ISA can be better than a traditional savings account as you can your money can grow more without having to worry about tax on any interest earned.

Of course, the decision can depend on your individual circumstances. For example, if you want to save more than the £20,000 ISA allowance each year, you may prefer to use a traditional savings account.

Is an Instant ISA a Cash ISA?

No, not all Cash ISAs are Instant-access ISAs. Some offer better interest rates in return for keeping your money locked away.
If you need to be able to access your money at short notice, opening an Instant-access ISA can be a great choice. However, it’s important to note that such accounts typically offer a lower interest rate.

Please note:

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change in the future.

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