Cash ISA vs Stocks & Shares ISA — what's the difference?
Quick answer: Both are tax-free wrappers around the same £20,000 annual allowance, but they hold completely different kinds of asset.
Both are tax-free wrappers around the same £20,000 annual allowance, but they hold completely different kinds of asset. A Cash ISA is a savings account where the interest is tax-free and the capital is FSCS-protected up to £85,000 per banking group. A Stocks & Shares ISA holds investments — usually funds, ETFs or shares — whose value can fall as well as rise. The right choice depends almost entirely on when you'll need the money.
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Primary source: gov.uk/individual-savings-accounts
Cash ISA: how it works
A Cash ISA is, in effect, a savings account where the interest is tax-free. The capital is FSCS-protected up to £85,000 per banking group, the same as a normal savings account.
Easy-access, notice and fixed-rate Cash ISAs all exist. The fixed-rate accounts usually pay more but lock the money up for a year or longer; some allow access with an interest penalty.
Stocks & Shares ISA: how it works
A Stocks & Shares ISA holds investments — most commonly funds, ETFs and individual shares. Any capital gains and any dividends inside the ISA are tax-free.
Returns are not guaranteed and the value can fall. Over rolling 10-year periods, a diversified global equity portfolio has historically delivered around 5% per year above inflation, but with significant volatility year-to-year.
Which to choose
A common framing: cash for money you might need within 5 years (emergency fund, house deposit, near-term commitments) and stocks & shares for money you can leave invested for at least 5–10 years.
You can hold both. The £20,000 limit applies across all your ISAs combined, but how you split it between cash and investments is up to you.
Costs and what eats your returns
Cash ISAs are free to operate — you receive the headline rate quoted and that's it. Compare like-for-like using the gross AER; ignore introductory bonuses if you won't switch again when they expire.
Stocks & Shares ISAs charge a platform fee (typically 0.15–0.45% a year, or a flat monthly fee of £10–£15) plus the ongoing charges figure (OCF) of the funds you hold (0.05–0.30% for global index trackers, 0.5–1.0% for active funds). Combined, a low-cost portfolio runs at around 0.30–0.50% a year, an actively-managed portfolio 1.0–1.5%. Over 20 years that 1% difference removes about a fifth of the eventual pot.
Switching between them without losing your allowance
An ISA-to-ISA transfer (cash to stocks, stocks to cash, or provider to provider) preserves the tax-free wrapper and does not use up any of the current year's allowance — provided you fill in the receiving provider's transfer form and let them request the move, rather than withdrawing the cash and re-paying it in yourself.
Stocks & Shares ISAs can usually be transferred 'in specie' (keeping the investments) or 'as cash' (sold first, transferred, then re-bought). In specie avoids being out of the market but takes longer; cash is faster but you're out of the market for 1–4 weeks.
Cash ISAs holding fixed-rate accounts may charge an interest penalty for transferring out before the term ends — check before initiating the move.
Common questions
- Can I move money between a Cash ISA and a Stocks & Shares ISA?
- Yes. Use the formal ISA transfer process and the move does not affect your annual allowance. Withdrawing and re-paying would use up some or all of the current year's allowance.
- Are Stocks & Shares ISA gains really tax-free?
- Yes — no Income Tax on dividends or interest inside the ISA, and no Capital Gains Tax on profits when you sell. You do not need to report ISA gains to HMRC.
- What protection do I have?
- Cash ISA deposits are protected by the FSCS up to £85,000 per banking group. Stocks & Shares ISAs are protected up to £85,000 per authorised firm against the firm itself failing — investment losses caused by markets falling are not compensated.
- Can I pay into a Cash ISA and a Stocks & Shares ISA in the same tax year?
- Yes, and since April 2024 you can pay into more than one of each type as well — provided your combined new contributions across all adult ISAs stay within £20,000.
- If markets crash, do I lose my Stocks & Shares ISA allowance?
- No — the tax-free wrapper stays in place regardless of the pot's value. A £20,000 contribution that falls to £14,000 still sits inside an ISA and any future recovery is also tax-free. You don't get a top-up allowance to make up the loss, though.