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

With the current tax year ending on 5 April, and any unused ISA allowances being lost forever, we look at how to choose between a Cash ISA or Stocks and Shares ISA.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Cash ISAs and Stocks and Shares ISAs let you save and invest without having to worry about UK income or capital gains tax. With tax changes on the horizon, these tax benefits are more important than ever. And the reality is, they’re unlikely to fall.

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 what ISA to choose?

This article isn’t personal advice. Tax rules can change, and their benefits depend on your personal circumstances. Unlike with 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

A Cash ISA is like a normal savings account. You can currently save up to £20,000 tax-free each tax year, and the money stays in cash.

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 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.

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


Why no risk, might 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.

Worse still, inflation has recently hit 4.9%, the highest level for almost 30 years. The average Cash ISA rate, meanwhile, was 0.31% at the end of February.

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

Average Cash ISA rate vs inflation

Source: Office for National Statistics and Bank of England, correct as of 11 March 2022.

Should you consider a Stocks and Shares ISA?

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

With a Stocks and Shares ISA, you 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.

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

Over 120 years of data up to December 2020, shows the stock market has beaten cash in 91% of ten-year periods.

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.


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 your combined £20,000 annual ISA allowance.

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. You won’t get any interest on your money while its held in cash though.

Avoid the rush – secure your ISAs today

The current tax year ends at 11.59pm on 5 April, and you’ll lose any unused ISA allowances.

So it’s unsurprising there’s a rush when the deadline looms as people make the most of their allowances. And it’s not just in the final month.

On the final day of the last tax year, we saw thousands of people rushing to secure their allowances. In fact, an HL Stocks and Shares ISA was opened or topped up every four seconds.

If you’re planning on using your ISA allowance, why not save yourself hassle and avoid the rush by doing it today.

ISA prize draw - a chance to win £20,000

Pay into an HL Stocks and Shares ISA for the chance to win £20,000. You’ll need to add at least £500 to your ISA between 20 February 2022 and 5 April 2022 in order to qualify. Terms apply.



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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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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