If you’ve got money to put aside, you might be considering putting it into an individual savings account, or ISA, for short. There are broadly two types to choose between: the cash ISA and the stocks and shares ISA. We’ve put these two products side by side to help you figure out which of the two you’re looking for.
Cash, junior, lifetime or stocks and shares: an ISA is a tax free account named by some defining feature about it. For example, cash ISAs and stocks and shares ISAs are named by the types of assets held in them, junior ISAs are named after the type of account holder and lifetime ISAs are named to determine how you’d use it, as it’s for retirement or to buy a house.
In the case of all of these accounts, there’s a tax-free allowance attached to them, which means that your profits are tax free. Generally speaking, a UK adult gets a £20,000 for the 2026/2027 tax year, which is refreshed each year. This allowance is for the total of all of your ISAs, so it can be split between several accounts if you want one of each type. For example, you can have a cash ISA with £10,000 in it, a stocks and shares ISA with £6,000 in it and a lifetime ISA with £4,000 in it and you’ve used your allowance.
The lifetime ISA (LISA) and junior ISA (JISA) are slightly different – you can only put £4,000 each year into a LISA and children can only put £9,000 each year into a JISA. Children between the ages of 16 and 18 are lucky enough to have both a junior ISA allowance and an adult ISA allowance, as well.
A cash ISA is a type of savings account that lets you save without paying any tax on the interest you earn.
As with other savings accounts, you can get both fixed rate and variable rate cash ISAs and you may have to lock in for a longer period of time to qualify for a better rate.
A stocks and shares ISA is a tax-free investment account. It’s pretty much identical to a general investment account, except you’ll get to make use of your ISA allowance.
There’s not usually a need to give notice if you want to withdraw money from your ISA, but you do need to give your provider time to sell down your investments before you can start the process.
These are some of the key facts about cash ISAs and stocks and shares ISAs:
| Cash ISAs | Stocks and shares ISAs | |
|---|---|---|
| Interest | Fixed or variable | Dependent on investments |
| Invested? | ||
| Tax-free interest? | ||
| Notice needed for withdrawal? | Sometimes | |
| Risk | Low | Medium – High |
| Growth determined by… | Interest rates | Investment performance |
| Timescale | Any | More than 5 years |
The main similarity between cash ISAs and stocks and shares ISAs is that you can use your £20,000 ISA allowance with both of them.
Cash ISAs and stocks and shares ISAs are very different products, but they’re often considered to be similar because of their names, and because both let you make use of your ISA allowance.
In reality, a cash ISA is simply a type of savings account and a stocks and shares ISA is a type of investment account — what ties them together is the tax-free element. You won’t have to pay any tax on the profits made from them in each tax year, but this isn’t due to anything more than a shield or an invisibility cloak, protecting them from the tax man.
With a cash ISA, you’ll have a fixed or variable interest rate, while the interest you’ll receive from a stocks and shares ISA is dependent on how your investments perform. As a result, this means that stocks and shares ISAs are considered to be riskier than cash ISAs.
Because of the risk involved, you’ll want to consider the amount of time you plan to leave your money saved or invested for. If you’ll need it within the next few years, it’s not wise to put it into stocks and shares, as you wouldn’t give your portfolio long enough to ride the waves of volatility that come with investing. A cash ISA is good for any timeframe, but you run the risk of losing value from inflation.
Depending on the type of cash ISA you have, you may need to give notice that you’d like to withdraw money from the account. This isn’t generally something you see with stocks and shares ISAs, but if your money is tied up in investments, you would need to sell them before you can make a withdrawal.
There are 4 main types of individual savings accounts: cash, stocks and shares, junior and lifetime.
If you’re wondering whether a stocks and shares ISA is better than a cash ISA, it’s important to remember these are two different tax-efficient accounts, one for saving and the other for investing.
The best type of ISA for you to use depends on your financial goals. If you want to grow your savings over a long period and you’re prepared to take on some risk, a stocks and shares ISA might be your best bet. However, if you’ll need your money sooner or have a low risk tolerance, a cash ISA could be more suitable. Although, some cash ISA accounts may come with restrictions or notice periods.
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