A cash ISA is a tax-free savings account: your money is safe and earns interest. A stocks and shares ISA is a tax-free investment account: your money goes into funds or shares, can rise or fall, and has historically grown much more over the long run. Both share the same £20,000 a year ISA allowance, and you can split it between them.
The simple rule: cash for money you need within about five years, stocks and shares for money you can leave alone for longer. A planned cut to £12,000 for under-65s from April 2027 was scrapped in the October 2026 Budget, so you can still put the full £20,000 into cash.
Quick check: see how each type could grow with our free ISA calculator, which includes the 2027 cash ISA change.
Cash ISA vs stocks and shares ISA at a glance
- What you get: cash ISA pays interest; stocks and shares ISA holds investments like index funds, ETFs and shares
- Risk: cash ISA balance cannot fall; stocks and shares can lose value, especially in the short term
- Long-term growth: stocks and shares have beaten cash over most 10-year periods
- Tax: both are free of income tax and capital gains tax
- Protection: cash is covered by the FSCS up to £120,000 per bank; investments are covered up to £85,000 if the platform fails, but not against market falls
- Allowance from April 2027: still £20,000 for cash (the planned £12,000 cap was scrapped)
How the ISA allowance works
Every UK resident aged 18 or over gets a £20,000 ISA allowance each tax year, from 6 April to 5 April. You can put it all in one ISA or spread it across a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA. Unused allowance does not carry over. It is use it or lose it.
You can now open and pay into more than one ISA of the same type in a tax year, as long as the total stays under £20,000.
The April 2027 The planned £12,000 Cash ISA cap for under-65s from 6 April 2027 was scrapped in the 28 October 2026 Budget. You can still put the full £20,000 a year into cash, a Stocks and Shares ISA, or any split of the two. See what changed.e full £20,000 for cash.
The government’s aim is to push more savers toward investing. If you rely on cash ISAs, it is worth using your full allowance in the 2025/26 and 2026/27 tax years while the higher limit lasts.
When a cash ISA makes sense
- Your emergency fund. Three to six months of costs should be safe and easy to reach.
- Short-term goals, like a house deposit, a wedding or a car within the next few years.
- Higher-rate taxpayers. The personal savings allowance only covers £1,000 of interest for basic-rate taxpayers and £500 for higher-rate. Additional-rate taxpayers get none. A cash ISA shelters interest above those amounts.
- Nervous investors who would sell in a panic after a big market drop.
When a stocks and shares ISA makes sense
- Goals five or more years away, like retirement or children’s university.
- Beating inflation. Over long periods, cash often only just keeps up with prices.
- Growing wealth. £300 a month for 25 years at a 6% average return would reach about £208,000, with roughly £118,000 of that from growth, all tax-free. The same in cash at 3.5% would be about £143,000.
- Dividends and gains, which would otherwise be taxed above small allowances outside an ISA.
The easiest start is a low-cost global index fund. Our guide to index funds for beginners explains how they work.
What about the Lifetime ISA?
If you are 18 to 39, a Lifetime ISA lets you save up to £4,000 a year and the government adds a 25% bonus, up to £1,000 a year, until you turn 50. It counts toward your £20,000 allowance. You can use it for a first home costing up to £450,000, or from age 60. Take it out for anything else and you pay a 25% charge, which costs you more than the bonus. A Lifetime ISA can hold cash or investments.
Can you have both?
Yes, and many people do. A common setup is a cash ISA for the emergency fund and near-term goals, and a stocks and shares ISA for the long term. You can also transfer between ISA types without losing the tax benefit, as long as you use the provider’s transfer process. Withdrawing the cash yourself and paying it back in would use up new allowance, unless your ISA is “flexible”.
Fees to watch in a stocks and shares ISA
- Platform fee: either a percentage of your balance, often 0.15% to 0.45%, or a flat monthly fee. Flat fees usually win once your balance is above about £20,000 to £30,000.
- Fund fee: the ongoing charge of the funds you pick. Global index funds can cost under 0.25% a year.
- Trading fees: some platforms charge for each purchase of shares or ETFs.
- Live prices and sentiment on every ticker page
- Weekly email with your watchlist movers
- Price alerts on the stocks and coins you follow
Frequently asked questions
Can I lose money in a stocks and shares ISA?
Yes. Investments can fall, sometimes by 20% to 30% or more in a bad year. Over 10 years or longer, a diversified fund has usually recovered and grown, but there is no guarantee.
Is a cash ISA worth it if I pay basic-rate tax?
If your interest stays under £1,000 a year, you would not pay tax on it anyway, so compare rates with normal savings accounts. Once your savings are large enough to earn more than that, a cash ISA starts to matter.
What happens to ISAs if I move abroad?
You can keep your existing ISAs and they stay tax-free in the UK, but you cannot add new money while non-resident. The country you move to may tax the income.
Is there an ISA for children?
Yes. A Junior ISA allows up to £9,000 a year, in cash or investments, and the child takes control at 18.
This article is general information, not financial advice. ISA rules are set by HMRC and can change, so check the latest rules before opening an account.
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