Originally published at: Cash ISA vs Stocks and Shares ISA: which is right for you?
Not sure whether to choose a Cash ISA or a Stocks & Shares ISA? Comparing the tax benefits as well as the relative risks and potential returns can help you pick the right option for your goals.
Whether you’re saving for a rainy day or planning long-term, choosing the right type of ISA could make a big difference to your financial future.
Here’s how Cash ISAs vs Stocks and Shares ISAs compare, as well as what might change from July 2025 that could affect your decision.
What is an ISA?
An ISA, or Individual Savings Account, is a popular way to save and invest money tax-free in the UK.
Each tax year, adults can put up to £20,000 into an ISA. You won’t pay any income tax on interest earned or capital gains tax on investment growth, making it a powerful tool for building long-term wealth.
There are a few different types of ISA, including:
- Cash ISAs – savings accounts where you earn tax-free interest.
- Stocks and Shares ISAs – where you can invest in things like ETFs, shares, or bonds.
- Lifetime ISAs (LISAs) – designed to help you buy your first home or save for retirement.
- Junior ISAs – which offer tax free savings for under 18s.
So, what is a Cash ISA?
A Cash ISA is a savings account where the interest you earn is tax-free. You can open one if you’re a UK resident aged 16 or over.
There are two main types: instant access, which lets you withdraw money whenever you like, and fixed-rate, which locks your money away for a set time but pays a bit more.
And, what is a Stocks & Shares ISA?
A Stocks & Shares ISA lets you invest your money rather than just save it. You can buy shares, bonds and ETFs – all within a tax free wrapper, which means that any dividends or capital gains are free from UK tax.
Unlike a Cash ISA, your returns aren’t fixed. Your investments can grow over time. For example, if you invest in a fund that tracks the S&P 500, like Invesco’s SPXP, you can target returns of about 10% – the index’s historical average annual return before inflation.
Source: InvestEngine. Past performance is not a guarantee of future returns.
While that can be attractive, of course past performance is not a guarantee of future returns and remember that investment value can go up as well as down, and you may get less than what you’ve invested.
Can you use both types of ISAs?
Yes, you can. But the total amount you put in across all your ISAs must not exceed your annual ISA allowance, which is £20,000 for the 2025/26 tax year.
That means you could, for example, put £4,000 into a Cash ISA and £7,000 into a Stocks & Shares ISA to still have a balance of £9,000 for the rest of the tax year.
If your provider offers a flexible ISA, you can even withdraw money and put it back in within the same tax year without it counting towards your £20,000 limit- giving you extra breathing room if your plans change.
You can also transfer money between ISAs. If you’ve already put money into a Cash ISA but decide you want to invest instead, you can transfer those funds into an InvestEngine Stocks & Shares ISA without it affecting your allowance.
ISA transfers may have implications for your investments. Please consider all factors before deciding to transfer.
Which one is better?
Well, that entirely depends on your goals and risk appetite. Here’s a quick comparison:
| Are you looking for… | Cash ISA | Stocks & Shares ISA |
| Lower risk of potential losses of your investment? | ✅ Yes | ❌ No |
| Potentially higher returns? | ❌ No | ✅ Yes |
| An ISA that’s generally better for rainy day savings? | ✅ Yes | ❌ No |
| An ISA that’s generally better for long-term investing? | ❌ No | ✅ Yes |
| A way to save without investing your money? | ✅ Yes | ❌ No |
If you’re looking for less risk and quick access to your money, a Cash ISA is probably the better choice.
For longer-term goals and the potential for higher returns, a Stocks & Shares ISA might be the one, if you’re happy to accept some risk.
What’s changing with Cash ISAs?
From July 2025, the government is expected to cut the maximum you can pay into a Cash ISA each year. While the full ISA allowance will remain at £20,000, the portion that can go into cash could drop to as low as £4,000.
This move is designed to push more savers into investing and support UK companies. But for cautious savers, it limits how much can be saved in low-risk, tax-free savings.
If you’ve relied on Cash ISAs in the past, now might be the time to explore other options like Stocks & Shares ISAs or flexible accounts.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.