Cash ISA v Stocks and Shares ISA: Which to choose?

Both Cash ISAs and Stocks and Shares ISAs offer a tax-efficient way of saving and potentially helping your money grow.

In the 2025/26 tax year, you can contribute up to £20,000 to one or more ISA accounts without incurring Income Tax or Capital Gains Tax on any interest or returns.

However, it’s important to understand the differences between these two types of ISA before deciding where to put your money.

Remember, you don’t have to choose one or the other. Cash ISAs and Stocks and Shares ISAs may both offer benefits that could help you achieve different financial goals.

Keep reading to learn more about how these two tax-efficient savings accounts work and the benefits they each offer.

How Cash ISAs work

Cash ISAs are the most popular type of ISA. The latest government figures reveal that they made up 63.2% of all ISA accounts in 2022/23, up 2.5% from 2021/22.

Just like many other savings accounts, a Cash ISA allows you to deposit money and earn interest on the balance in your account.

The main appeal of a Cash ISA is that you can earn tax-free interest on your savings, provided that your total contributions across all ISA accounts do not exceed £20,000 (2025/26).

In contrast, any interest you earn on savings held outside an ISA wrapper is usually taxable at your marginal rate of Income Tax if it exceeds certain thresholds.

The table below shows the key features, advantages, and disadvantages of the four main types of adult Cash ISA.

Cash ISA type	Key features	Advantages	Disadvantages
Easy access Cash ISA	Withdraw and deposit at any time	Flexibility, instant access, and no penalty for withdrawals	Typically offer lower interest rates than other Cash ISAs
Fixed rate Cash ISA	Pays a guaranteed interest rate for a fixed term (typically one to five years)	Guaranteed interest. Also, higher rates are often available for longer fixed terms	Inflexible due to penalties or fees for accessing funds before the end of the fixed term
Notice Cash ISA	Requires advance notice (typically 30 to 120 days) for withdrawals	Potential for achieving higher interest rates than for easy access Cash ISAs. Offers more flexibility than fixed rate accounts	Penalties for making withdrawals without giving due notice
Regular saver Cash ISA	You must pay a fixed amount into your account every month	Could help you develop a savings habit and typically offers more attractive interest rates than standard savings accounts	Interest rates may drop if you fail to make regular payments, and there is often a limit on the amount you can deposit each month.

 

Pros and cons of Cash ISAs

Pros

Cash ISAs are the most popular type of tax-efficient savings account for several reasons:

• Low risk – Funds are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per authorised provider.
• Simplicity – They work like most other savings accounts, making them familiar and easy to use.
• Choice – With four types of adult Cash ISA available, you can pick an account that meets your specific needs and savings goals.

Cons

While Cash ISAs may look attractive, it’s important to consider the following potential drawbacks:

• Inflation risk – If interest rates are lower than inflation, the real value of your savings could fall over time.
• Lower interest rates – You may need to lock your money away for a fixed term to achieve a better interest rate, which might not suit your circumstances. Moreover, Cash ISAs typically offer lower returns than Stocks and Shares ISAs.
• Long-term performance – Research published by IFA Magazine found that Cash ISA savers who used their full annual ISA allowance every year since the product launched in 1999 may have lost out on £134,000 compared to those who invested in UK shares.

How Stocks and Shares ISAs work

According to government data, the number of Cash ISA subscriptions increased by 722,000 in 2022/23. In contrast, the number subscribing to Stocks and Shares ISAs fell by around 126,000.

Moreover, a survey by The Investment Association and Opinium has found that one in five UK adults has “never heard” of a Stocks and Shares ISA.

If you’re unfamiliar with this type of ISA, it allows you to invest in various stock market assets, such as company shares, investment funds, and bonds.

You can choose between two broad categories of Stocks and Shares ISAs.

Stocks and Shares ISA type	Key features	Advantages	Disadvantages
Self-select Stocks and Shares ISAs	Pick and manage your own investments	Freedom of choice, full control, and potentially lower fees	Requires knowledge, time, and confidence. As such, there could be a greater risk of mistakes.
Managed Stocks and Shares ISA	A professional chooses which funds and assets to invest your money in	Convenience and expert management ensuring effective diversification	Less control over your portfolio and management fees

As with Cash ISAs, returns are tax-free, provided your total contributions across all your ISAs do not exceed the annual ISA allowance.

Pros and cons of Stocks and Shares ISAs

Pros

There are several reasons you might want to consider investing in a Stocks and Shares ISA:

• Potential for higher returns – Stocks and Shares ISAs deliver higher average returns than Cash ISAs, especially if held for five years or more. Moneyfacts found that the average Stocks and Shares ISA fund experienced a growth of 11.86% between February 2024 and February 2025, compared to returns of just 3.8% for Cash ISAs over the same period.
• Flexibility – There is a wide choice of assets so you can tailor your investments to align with your financial goals and appetite for risk.
• Diversification – Spreading your wealth between Cash ISAs and Stocks and Shares ISAs could help balance risk and meet different financial goals.

Cons

Of course, as with Cash ISAs, there are some potential drawbacks to putting money in a Stocks and Shares ISA:

• Higher risk – With the potential for higher returns comes the risk of losing some or all of the money you invest.
• Fees and charges – Management fees and trading charges could reduce your overall returns.

Also, remember that for both Cash ISAs and Stocks and Shares ISAs, your total tax-efficient savings are capped at £20,000 (2025/26) across all ISA accounts.

Get in touch

If you’d like to invest some of your wealth but you’re not sure how to get started, we can help. Equally, if you’re worried that you’re holding too much in cash, our financial planners can review your portfolio and ensure that it is effectively diversified and aligns with your long-term goals.

Email helpme@aspirellp.co.uk or call 0117 9303510.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

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.

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.