Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
Cash ISA vs stocks and shares ISA: which is better for your money?
Comparing low-risk cash ISAs to potentially higher-returning stocks and shares ISAs overlooks the fact that both have an important role for different goals.
Deciding whether to put your money into a cash ISA or a stocks and shares ISA can feel like a head-scratcher – but it doesn’t have to be.
The two serve very different purposes, and can work well alongside each other. The important thing is having a clear idea of what you want out of the savings in your cash ISA, and what you’re planning to do with the money you invest into a stocks and shares ISA.
In brief, cash ISAs make a good home for money that you can’t afford to lose. That could include an emergency savings pot, or cash you’re putting aside for a big purchase within the next few years.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
That’s why any money that you aren’t likely to need in an emergency or within the next two years could be put into a stocks and shares ISA where, despite the risk of short-term volatility, it will hopefully increase in value more over the long term.
“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 Laura Suter, director of personal finance at investing platform AJ Bell.
“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.”
But for long term goals such as retirement plans or home improvements, Suter says 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.”
The advantages of cash ISAs
The biggest strength of a cash ISA is that it offers you the security and peace of mind that any money you hold in it will hold its nominal value.
Stock markets, on the other hand, can be volatile in the short term and your portfolio can fall in value, meaning your investments could be worth less than when you bought them, depending on when you cash out.
That means cash ISAs are a great place to store money that you think you might need within the short to medium term.
For example, a cash ISA might be the better option when you are planning on making a significant purchase (like a house) within the next one to two years and cannot afford to see the value of your savings go down.
It’s recommended people hold an easy to access emergency savings pot which covers three to six months of essential spending, before considering locking investments away longer-term.
The advantages of stocks and shares ISAs
While the security of cash savings is a big advantage, advocates of investing will highlight that cash holdings tend to be eroded by inflation over time.
Even if the interest rate on your cash is above the level of inflation, your savings tend not to grow very fast in real terms.
In contrast, although there is more risk involved with investing and markets can experience short-term volatility, stock markets have historically tended to rise in value more than cash over the long term.
This creates a significant disparity between the wealth of investors and cash savers in the long term, even when the principal sums saved are the same.
If you used up your entire ISA allowance every year since they were launched in 1999, and earned the average interest rate banks lend money to each other, you would have accumulated £418,176 by February 2026, according to data from HMRC obtained by investment platform InvestEngine through a Freedom of Information request.
In contrast, if you put the same amount of money into a stocks and shares ISA every year and invested it into an exchange-traded fund (ETF) tracking global stock markets, you would now be an ISA millionaire with a pot worth £1,357,964.
That is over three times more than the equivalent cash ISA saver.
InvestEngine’s head of investments Andrew Prosser says this divergence reinforces “how investing early and consistently in a diversified portfolio can make a meaningful difference to long-term, tax-free wealth as part of a broader financial plan.”
Do you need to choose between a cash ISA and a stocks and shares ISA?
As you can hold multiple ISA accounts of any type and with multiple providers, there is no need to “choose” between a cash ISA or a stocks and shares ISA.
In fact, many people split their £20,000 annual ISA allowance between cash and stocks and shares accounts to make sure they are not paying any tax on their savings or investments.
The decision you will need to make, however, is what the correct balance between cash and investments is for you.
If you have a long time frame over which your investment portfolio can ride out short-term volatility and growth, it may make more sense to invest your money in the stock market.
But if you need the security that your short-term savings will not fall in nominal terms, then putting your money into a cash ISA may be the right choice for you.
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.
Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.
Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.
