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Cash ISA Vs Stocks & Shares ISA: Which is The Right One For You?


Are you looking for a lucrative way to save money for your future? If so, you may be interested in a Cash ISA or Stocks and Shares ISA. There is a maximum £20,000 contribution a year and the returns are in the form of interest for the Cash ISAs. Dividends and gains are also exempt from tax under the ISA Stocks & Shares wrapper.

Many people haven’t been satisfied with the rate of growth from their savings account and have been searching for a better and more beneficial way to invest their money. This is because of the low interest rates from regular savings accounts and poor growth. If this sounds like you, then an ISA may be a solution for you.

It is no surprise that ISA products have been steadily growing in popularity over the past few years as people realise the benefits and the fact that you don’t pay tax on the money you are saving.

So, what is the difference between these 2 products? Well, both of them allow you to save money for your future and the major benefit is that you pay zero tax on any gains. This is the main reason people have been switching to ISA products lately.

Generally speaking, Cash ISAs are much more popular, but this doesn’t mean you shouldn’t consider stocks and shares ISA: it all depends on what your goals are.

Cash ISAs.

Cash ISAs are similar to savings accounts in which you can accumulate money. Any interest gained on your cash ISA will be tax-free, making them an attractive option.

Stocks and shares ISA.

Stocks and shares ISA allows you to invest money on the stock market and you don’t have to pay tax on your returns. The risk, of course, is if your investment goes down on the stock market you could lose money, but if you invest wisely, there is no reason why your money shouldn’t grow nicely.

Consider the length of time of your investment goals.

Whether you ultimately choose a cash ISA or stocks and shares ISA will depend largely on the length of your investment goals.

For example, if you want to save money for your retirement, this is a long-term investment and you may be better off investing in a good stocks and shares ISA. Although your funds may go up and down according to the market trends, generally speaking, the stock market sees a higher rate of return than most interest rates offered from a cash ISA.

Cash ISAs are, by their very nature, higher than most savings accounts and this is part of their attraction. However, it is worth bearing in mind that interest rates today are much lower than the annual inflation rate. This means that your money could be worth less in the future than it is today.

The best of both worlds: a cash ISA and stocks and shares ISA.

If you can’t decide whether a cash ISA or stocks and shares ISA would be better for you, An option could be to try both products.

You could start off with both options and then move money from one to the other if the need arises. At the moment, you won’t be taxed for these actions (however, legislation may change in the future).

An important point to note is that you need to ensure that your total contributions do not exceed the £20,000 allowance per year between all the ISA accounts in the given tax year. This essentially means that contributions to your Cash ISA + Stocks and Shares ISA must not exceed £20,000.

There are a number of ISA providers that you can choose from, it really depends on what kind of person you are and how involved you want to be. If you’re the “hands-on” type who will be actively making changes to your Stocks and Shares Investments then we would suggest looking at Trading 212Freetrade and Hargreaves Lansdown. While if you’re the person who prefers setting up the account once and automate everything, then Nutmeg and Money Box may be the right platforms for you. These offer great additional tools to help you save even more you can even read our top Stocks & Shares ISA picks.

Inkmattic Personal Finance

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