Cash ISAs v Stocks and Shares ISAs: How to make the most of your savings and investments

Individual Savings Accounts (ISAs) were introduced back in 1999 as a replacement for existing tax-efficient savings.

Since then, they have soared in popularity, offering savers an effective way to grow their wealth while shielding it from tax.

However, new rules are on the horizon and will affect how you can save into your ISAs. Read on to find out more about what’s in store, and how you can make full use of your ISAs.

Cash can be an accessible option, while investments tend to be beneficial for the long term

It can sometimes be difficult to know how best to save.

Cash can feel comforting, familiar, and accessible, but it’s not always the best way to grow your long-term wealth.

Meanwhile, investments can sometimes feel more complex, and they do tend to carry a higher risk than cash, but can be much more beneficial in the long term.

ISAs offer the option for both cash savings and investments, and there are four types of adult ISA products:

• Cash ISAs
• Stocks and Shares ISAs
• Lifetime ISAs (LISAs)
• Innovative Finance ISAs (IFISAs)

You are most likely to have one or more of the first three on this list, but here we’re focusing purely on Cash ISAs and Stocks and Shares ISAs.

The government has announced changes to how much some savers can pay into their Cash ISA

Both are highly popular; according to Finder, almost half of Brits have a Cash ISA, while just over a quarter have a Stocks and Shares ISA.

In 2026/27, you have a £20,000 annual allowance which you can spread at your own discretion across all your ISA products. Gains and interest are usually free from Income Tax, Dividend Tax, or Capital Gains Tax (CGT), so your ISAs act as a tax shelter for your wealth.

However, from 2027/28, although the £20,000 allowance will remain, savers under 65 will only be able to deposit a maximum of £12,000 into a Cash ISA. The remaining £8,000 can be divided across other ISA products.

This doesn’t mean that you have to put £12,000 into a Cash ISA. You can put as much of your allowance into your Stocks and Shares ISA (or other products) as you wish. But the government is trying to shift savers away from the “comfort” of cash and into a more dynamic investing position.

If you’re over 65, the rules won’t change, and you can use your £20,000 ISA allowance however you choose.

There are pros and cons to both Cash ISAs and Stocks and Shares ISAs

Cash ISAs

Essentially, a Cash ISA enables you to earn tax-free interest on your savings.

They are:

• Generally a low-risk way to save
• Easily accessible, which makes them a good emergency or rainy-day fund
• Protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person.

It can often be a good idea to keep some of your wealth in cash savings, in case an unexpected expense arises or your income suddenly takes a hit.

However, Cash ISAs can also be at the mercy of inflation. Even if your balance is rising, in real terms it may not give you the same spending power if the cost of goods and services has outweighed your interest rate.

Stocks and Shares ISAs

A Stocks and Shares ISA enables you to invest in funds, shares, and bonds, without paying CGT on your returns.

In light of the new thresholds being brought in, you may wish to consider a Stocks and Shares ISA if you don’t already have one, or think about using more of your annual allowance in these investment accounts.

They offer:

• Greater returns than Cash ISAs, historically speaking
• Long-term investment growth through compounding – each time your investments make a return, you will then start to see growth on the returns as well as your initial investment. Left invested, your wealth can start to capitalise on the compounding effect, without further input from you.

However, all investments do bring some element of risk, and past performance isn’t an indicator for the future. Although your investments can grow faster than cash, you will also be exposed to the volatility of the stock markets.

Stocks and Shares ISAs are usually recommended to be left in place for at least five years to help you benefit from compounding and to ride any market volatility. This means that, although you can withdraw funds, they are less easily accessible than those in a Cash ISA.

Get in touch

The good news is that you don’t have to choose between a Cash ISA and a Stocks and Shares ISA, as you can hold both simultaneously. The decisions you will need to make are how to spread your annual ISA allowance – very soon in accordance with the new rules – to best effect. This can depend on your long-term goals, expected needs for accessible funds, and tolerance to risk and losses.

If you’d like to find out more about the different types of ISAs, and how they could work for you, please email enquiries@integritasfp.co.uk or call 01283 248677.

Please note

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

The Financial Conduct Authority does not regulate tax planning.