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  • Cash ISA vs Stocks and Shares ISA – which to choose?

    How to choose between a Cash ISA or Stocks and Shares ISA.

    Last Updated: 6 April 2024

    ISAs let you save and invest without having to worry about UK income or capital gains tax. Tax isn’t always stagnant and can change year to year, so using these tax benefits is more important than ever.

    The ability to grow your money, coupled with the flexibility and the generous allowance, mean ISAs should be the backbone of many savers’ and investors’ portfolios.

    The most popular types of ISAs are Cash ISAs and Stocks and Shares ISAs – both with many of the same benefits, but potentially very different outcomes.

    The question is which ISA to choose?

    This article isn’t personal advice. Tax rules can change, and their benefits depend on your personal circumstances. Unlike with the security of cash savings, the value of investments go up and down, so you can get back less than you put in. If you’re not sure if an ISA’s right for you, ask for financial advice.

    Cash ISAs – saving for the short term

    A Cash ISA is like a normal savings account.

    The main benefit of having your money in a Cash ISA is you get the security of regular interest – though the amount of interest can and will change.

    Because of this, cash is often considered a safer place for your short-term savings. If you’re saving for a specific goal within the next few years, keeping your money in a Cash ISA could be a good option.

    But, if you’re going to stick with a Cash ISA, make sure you’re looking around for the best deal and factor in inflation.

    Take a look at the latest Cash ISA rates available in the HL Cash ISA, through Active Savings, to see if you can make more of your savings.


    Why some risk might still be too much risk

    You might feel more comfortable keeping your money in cash. But if your financial goals are more than five years away, then that’s not always the best option.

    Inflation is the general rise in prices of the things we pay for. The cash we have today won’t have the same buying power tomorrow. Over time, this can really add up. Especially when you consider that for most of the last ten years, the average Cash ISA has paid less than inflation – meaning the real value of your money was falling.

    So, is there a way to keep up with inflation and switch your money on?

    Should you consider a Stocks and Shares ISA?

    A Stocks and Shares ISA could be a better option for you, if you have money you’re not planning to spend in the next five years.

    With a Stocks and Shares ISA, you can invest your money. This gives it the potential to grow by more than sitting in cash. More importantly, it can help your money keep up with or beat inflation – especially over the long term.

    Over 121 years of data up to December 2020 shows equities have outperformed cash in 91% of consecutive ten-year holding periods within this time. By investing over long periods of time, any ebbs and flows in the market, will often out-perform cash.

    But there’s a trade-off. Unlike cash, the value of investments can rise and fall. Any income they produce can also vary. This means you could get back less than you put in.

    The key for any investor is to always focus on your long-term goals and make sure the rest of your finances are in a solid place before you get started. Control your debt by clearing any short-term, expensive debts. And have a healthy savings pot ready for emergencies. Also regularly review your investments to make sure you’re on track. If you’re unsure you should seek advice.


    Can I have both a Stocks and Shares ISA and a Cash ISA?

    If you’re torn between both ISAs, there’s always the option of having both. There’s nothing stopping you as long as you don’t go over whatever the annual ISA allowance has been set at for that tax year.

    You can also hold cash in a Stocks and Shares ISA temporarily. This gives you the option of holding your money as cash while deciding where you want to invest.



    The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

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