Stocks and shares ISA vs cash ISA

Both share some key features. For example: 

• You must be at least 18 to open them. 
• You can put a maximum of £20,000 into all ISAs you have open in each tax year.
• Gains (interest on cash or potential investment returns) are free from tax.

However, they’re also different in many other ways. So, it’s important to understand the differences between them before considering which might be best for you. 

What is a Stocks and Shares ISA?

A stocks and shares ISA allows you to invest your money rather than saving it in cash. Investing means putting your money into things (assets) with the hope that those assets will grow in value over time.
 
With a stocks and shares ISA, you can invest in assets such as:

• Shares in companies (also known as equities) - ownership stakes in businesses
• Government and corporate bonds - loans to countries and companies
• Commercial property - such as office buildings
• Commodities - like gold, oil and wheat. 

Rather than investing in these assets individually, with a stocks and shares ISA you’ll typically invest through funds. These are groups of assets managed by your ISA provider or an investment company.  
 
Most ISA providers are likely to offer multiple funds for you to choose from depending on what you want to achieve.

With a stocks and shares ISA, the value of your investments could go down as well as up, so you may get back less than you paid in.
 
Royal London’s Stocks and Shares ISA

What is a cash ISA?

A cash ISA is a savings account that pays interest. Any interest you earn is free from income tax.

There are two main types of cash ISA:

• Easy access - Withdraw your money at any time, but the convenience of this may be reflected in lower interest rates.
• Fixed rate - You agree not to access the money you pay into the ISA for a set period and are generally rewarded with a higher interest rate.

Differences between a stocks and shares ISA and a cash ISA

While the basics may be similar, there are major differences between the two types of ISA. That’s because with a cash ISA you save your money, while with a stocks and shares ISA, you’re investing it. 

Is a stocks and shares ISA right for you?

A stocks and shares ISA might be right for you if you:

• Have longer-term goals.
• Are comformation taking on risk for the potential of higher growth than interest on cash.
• Want the potential for investment gains without having to pay capital gains tax or income tax.
• Already have an emergency fund.
• Are unlikely to need access to your money within the next five years.

Is a cash ISA right for you?

A cash ISA might be right for you if you:

• Are looking for a tax-efficient way to save.
• Will need to access your money within the next five years.
• Want to build up an emergency fund.
• Don't want to take investment risk.
• Prefer the idea of security over maximising your opportunities for growth.

Can you have both a cash ISA and a stocks and shares ISA?

Yes, you can have both a cash ISA and a stocks and shares ISA at the same time. You can even have more than one cash ISA or more than one stocks and shares ISA at the same time if you want. 

How much can you pay into an ISA?

While you can have both a cash ISA and a stocks and shares ISA at the same time, there's a cap of £20,000 each tax year on what you can pay into all your ISAs. This is known as your ISA allowance and is split between all your ISAs.

If you don’t use your full ISA allowance in a tax year, you lose it. It doesn’t carry over to the next tax year.