Cash ISA vs stocks and shares ISA: which is better for your money?

Deciding whether to put your money into a cash ISA or a stocks and shares ISA has always been a head-scratcher.

Following ISA reforms at the Autumn Budget, the differences between cash and stocks and shares ISAs have been thrust into the spotlight.

Reeves confirmed she would cut the annual cash ISA allowance to £12,000 from April 2027, meaning savers would need to put £8,000 into stocks and shares in order to maximise their annual £20,000 allowance. Over 65s can continue using the full ISA allowance £20,000 with cash ISAs, if they wish to.

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HMRC also confirmed that certain ‘cash-like’ investments, potentially including money market funds, would be excluded from the stocks and shares ISAs allowance to prevent cautious savers circumventing the limit.

While the changes are intended to encourage more Brits to start investing, and in theory generate greater long-term returns, experts are unconvinced that the changes in their current form are the best approach.

“Those saving up to £20,000 each year into a cash ISA are losing out on the potential to benefit from the greater growth prospects of stocks and shares investments,” said Steven Cameron, pensions director at Aegon. “But rather than the ‘stick’ of a new lower limit, we would have preferred more use of the ‘carrot’ of more guidance on savings versus investments.”

Whether saving or investing is best for your money will depend on your financial circumstances and your goals. For instance, it’s recommended people hold an easy to access emergency savings pot which covers three to six months of essential spending, before considering locking money away, such as in investments.

Why choose between cash ISAs and stocks and shares ISAs?

Putting money into cash ISAs or savings accounts will offer security that your money will grow over time in nominal terms.

But advocates of investing often highlight that in real terms, cash holdings tend to be eroded by inflation over time, despite the best cash ISAs typically offering above-inflation rates – around 4.47% as of November 2025.

Analysis from AJ Bell shows that £1,000 deposited into the average cash ISA when ISAs were launched in 1999 would today be worth £2,079. The same investment into UK stocks via a typical UK All Companies fund would be worth almost twice as much, at £3,787.

“These figures highlight the hidden cost of playing it safe,” said Laura Suter, director of personal finance at AJ Bell. “While keeping money in cash can feel comfortable, over time it’s an almost guaranteed way to lose purchasing power.”

Exclusive research by AJ Bell for MoneyWeek shows that while the average cash ISA paid 3.5% last year, a stocks and shares ISA investing in global equities returned 9.6%. Meanwhile, an ISA invested in a UK equity fund returned 6.9% on average. (Sources: AJ Bell, Bank of England, FE, total returns in GBP to 31 Aug 2025.)

How do regular investments compare to cash?

Investing £1,000 into UK stocks every year since 1999 would be worth £67,866 today, AJ Bell analysis suggests, compared to just £36,290 if the same payments were made into a cash ISA.

The UK’s stock market has underperformed global competitors throughout that time period. £1,000 invested annually into global stocks would today be worth £92,000, while putting it into US stocks would have seen the same investment grow to £127,887 – more than three times the size of the cash equivalent.

^{Source: AJ Bell/Bank of England/FE. Data from 30 April 1999 to end of September 2025. Investment figures show average performance of sector including fund charges; inflation is based on CPI measure; cash ISA returns based on average interest rate available.}

“Regular investing has been particularly powerful – turning steady contributions into six-figure sums thanks to the power of compounding,” said Suter. “Over that 26-year period the investment in the average North America fund would be nearly five times the total contributions.”

Is investing in stocks riskier than cash?

In the short term, stocks are more volatile than cash and, unlike cash holdings, they can potentially lose nominal value; that is the non-inflation-adjusted value of your investments can fall, whereas cash can’t.

“Markets don’t move in a straight line and there will always be periods of volatility,” said Suter. That makes stocks riskier than cash if viewed over a short time period.

But over the long term there is evidence to suggest that stocks are a safer investment in real (inflation-adjusted) terms.

Barclays Research into the real returns on cash, UK equities (stocks) and gilts since 1899 found that the longer you hold any of these assets for, the smaller the variation in your real returns. Over 20+ time periods, the minimum and maximum return on equities was higher than the equivalent for either cash or gilts.

This divergence between how stocks compare to cash over different time periods highlights the need for a balanced approach between the two, rather than either/or.

“When it comes to choosing between a cash ISA and a stocks and shares ISA, the key question is: are you saving for the short term or the long term?” said Suter. “If you’re setting money aside for an emergency fund, typically three to six months’ worth of expenses, then a cash ISA is a solid option.”

This way, any money you need at short notice or in the case of emergency is protected and easily accessible.

But for long term goals such as retirement plans or home improvements, Suter believes a stocks and shares ISA is more effective than a cash ISA.

“Markets tend to rise over time and outperform cash, despite short-term fluctuations,” she said.

Scott Gallacher, director at advice firm Rowley Turton, said: “Clients with a longer time horizon, around five years or more, and a tolerance for investment risk may find investment ISAs more suitable. However, for shorter time frames – less than five years – or for those preferring caution, cash ISAs are often the better option.”

How to choose between a cash ISA and a stocks and shares ISA

The money they hold is protected from tax, and you have the flexibility to transfer from one to another or withdraw your cash at any time.

Currently, that £20,000 allowance can be split between different types of ISAs, however you see fit. For instance, you could put £10,000 into a stocks and shares ISA and £10,000 into a cash ISA, or £20,000 into cash ISAs.

But under the new rules, from April 2027, savers can only put up to £12,000 of the overall allowance in a cash ISA each year. This will only apply to under 65s. Savers would either have to put the remaining £8,000 into a stocks and shares ISA (or other ISAs such as innovative finance or Lifetime ISAs) if they wanted to maximise their annual limit.

There is a further blow to cash savers following the Budget, as a higher rate of income tax on savings interest held outside a tax-efficient wrapper (like an ISA) will also apply from April 2027.

Despite the new cash ISA limit there is no need to “choose” between either a cash ISA or a stocks and shares ISA. The two are not mutually exclusive, and the government is expected to make further changes to help people allocate their excess funds however works best for them.

“From next April a new ‘Targeted Support’ service will be available, which could equip more people to make the right financial decisions for themselves,” said Cameron, from Aegon. “This includes understanding the benefits of moving excess cash into a stocks and shares ISA, potentially benefitting from much higher returns, albeit at the expense of the ‘no loss’ security of cash savings.”