What is the difference between a stocks and shares ISA and a cash ISA?

Full answer

Both types of ISA shield your money from UK income tax and capital gains tax, but they work very differently. **Cash ISA** - Holds cash, earning interest from the provider - Interest is tax-free (no income tax, does not use your Personal Savings Allowance) - No investment risk -- your capital is protected up to £85,000 per provider (FSCS) - Returns depend on interest rates set by the bank or building society - Easy access or fixed-term options available - Suitable for short-term goals or emergency funds **Stocks and Shares ISA** - Holds investments: unit trusts, OEICs, ETFs, investment trusts, individual shares, corporate bonds, gilts - Dividends received within the ISA are tax-free - Capital gains on sales within the ISA are tax-free (no CGT) - Value can fall as well as rise -- no FSCS protection on investment losses - Charges apply: platform fee typically 0.1%--0.45% per year plus fund charges - Best suited for medium to long-term goals (5+ years minimum) **The £20,000 allowance** In 2026/27 you can put up to £20,000 total into ISAs each tax year, split however you like across cash and stocks and shares (and Lifetime/Innovative Finance ISAs). **Worked comparison** Premise: £20,000 invested for 10 years Cash ISA at 4.5% interest: grows to approximately £31,175 Stocks and Shares ISA at average 7% growth: grows to approximately £39,343 Both figures are illustrative. Stocks and shares returns are not guaranteed. **Which is better?** - For money you need within 3 years: cash ISA (capital protection) - For retirement or long-term goals: stocks and shares ISA (historically higher returns) - Many investors hold both: an emergency fund in a cash ISA and long-term wealth in a stocks and shares ISA **Transfers** You can transfer a cash ISA into a stocks and shares ISA (or vice versa) without using your annual allowance, as long as you transfer the funds directly between providers.

Related guides

• Uk Isa Types