Cash ISA vs Stocks & Shares ISA: everything you need to know

An ISA – Individual Savings Account – is a popular saving or investing vehicle that offers significant tax benefits. You can save a total of up to £20,000 per tax year from your net income into your ISA accounts, and returns are free from income tax, capital gains tax or dividend tax.*

What is a Cash ISA?

A Cash ISA is a type of ISA that allows you to save money without paying tax on the interest you earn. It’s very similar to a savings account, but with the advantage that all the interest you accrue is entirely tax-free.* This makes it a popular option for investors who want to protect their capital while earning a return, though it’s worth noting that if the interest rate is lower than inflation, the value of your cash will fall in real terms over time.

Depending on the account type you choose — including easy access, notice, regular and fixed-term — you can either access your funds at any time or commit them for a longer period in exchange for a higher interest rate. 

What is a Stocks & Shares ISA?

A Stocks & Shares ISA is another type of ISA, that allows you to invest in a wide range of assets including shares, funds, bonds and investment trusts. It shelters your money from both capital gains tax and dividend tax, meaning that any profits you make or income you receive from your investments will be tax-free.*

Unlike a Cash ISA, your money is subject to market risk and can go down as well as up. However, shares have historically outperformed cash over the longer term.

Therefore, a Stocks & Shares ISA might be a good option for those who are investing for the long term, typically at least five years or more, and who are comfortable with short-term volatility in exchange for potentially higher returns. 

How to invest in a Stocks & Shares ISA with us

For those looking invest in Stocks & Shares ISA with us, here's a straightforward approach:

1. Learn more about the Stocks & Shares ISA
2. Download the IG Invest app or open a share dealing account online
3. Search for your desired stock on our app or web platform
4. Choose how many shares you’d like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid. But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

We offer access to shares around the clock, including on our unrivalled weekend markets.

If you’re not ready to commit real funds, you can try out our demo account to see how it all works. You might also want to check out our IG Academy, which provides free education for all levels, where you can access online courses, live webinars, in-person seminars and a library of video tutorials to sharpen your trading knowledge.

You can buy shares with zero commission* and also earn 4.25% AER variable on your uninvested cash, on balances up to £100,000. But you’ll only receive interest if you’ve traded or held an open position in the calendar month.*

If you prefer a hands-off approach, our Smart Portfolio ISA offers you a fully managed, diversified and tax-efficient solution. With competitive fees and transparent performance reporting, we can help you match your portfolio to your risk profile — just select this option when you open your account.

And if you specifically want to back UK-listed businesses, IG makes it easy to discover and invest in UK-based companies, including both innovative growth stocks and household names. By including UK shares in your ISA, you could help support the future of British enterprise. Feel free to explore UK sectors like clean energy, fintech, biotech and industrials — all available commission-free when buying shares with us.

Key differences between a Cash ISA and a Stocks & Shares ISA

Possibly the most important difference between a Cash ISA and a Stocks & Shares ISA is the balance between risk and reward. A Cash ISA is secure, but returns are limited and may not keep up with inflation, especially when interest rates are low. On the other hand, a Stocks & Shares ISA offers greater growth potential, but your capital is at risk, and there is no guaranteed return.

Importantly, both types of ISA count towards your annual £20,000 ISA allowance. You can split this allowance between different types of ISAs, as long as you don’t exceed the limit in total. ISA savings are usually covered by the FSCS protection scheme, up to £85,000 per person per banking licence.

Cash ISAs do offer several advantages, including tax-free interest* on all savings, no risk of capital loss and very easy management. They are arguably ideal for short-term savings goals and emergency funds. However, they come with notable drawbacks — interest rates are often low, especially on easy-access accounts — and inflation can erode the real value of your savings. Additionally, their growth potential is limited, and fixed-rate ISAs may impose penalties for early withdrawals.

Stocks & Shares ISAs can offer higher potential returns and investors can choose from a wide range of options including shares, funds, bonds, and ETFs, making these ISAs suitable for long-term wealth building. They can also be managed actively or passively. However, they do carry risks, as your capital is at risk and values can fluctuate. This means these ISAs are not suited for short-term goals, and they also require either investment knowledge or trust in a financial adviser or platform.

For both Cash ISAs and Stocks & Shares ISAs, the power of compounding is significantly stronger, as returns are not diminished by tax, an advantage that becomes increasingly noticeable over time. Further, as investment-related taxes have risen over the past few years, ISAs have become even more appealing, as the tax savings they offer grow in relative value.

Compared to international standards, ISAs are also arguably very generous, offering both tax efficiency and flexibility, whereas most other countries typically allow just one of these benefits.

However, ISAs are not immune to change. The government retains the authority to amend ISA rules at any time, and there are ongoing discussions around simplifying ISAs into a single account type, lowering the annual allowance or restricting investments to UK-based companies to support domestic growth.

Additionally, unlike a SIPP (Self-Invested Personal Pension), the ISA allowance operates on a use-it-or-lose-it basis, resetting at the start of each new tax year.

Which ISA type is right for you?

Making your own decision between saving in a Cash ISA or investing in a Stocks & Shares ISA ultimately depends on your financial goals, risk tolerance, and time horizon.

If you're looking for a safe place to store your savings with immediate access and no chance of losing money, a Cash ISA could be for you. It’s especially useful for building an emergency fund or setting aside money for a planned purchase within the next few years.

However, if your aim is to grow your wealth over the long term, and you’re prepared to accept the ups and downs of the market, then a Stocks & Shares ISA could provide significantly better returns over time.

The stock market has historically outperformed cash savings over longer periods of time, although once again, past performance is no guarantee of future results. Many investors also choose to hold both types of ISAs to balance safety and growth across different parts of their portfolio.

Beyond personal savings, ISAs play a vital role in helping to channel long-term capital into the economy. When investors choose UK-listed companies within their Stocks & Shares ISA, they’re directly supporting British businesses, innovation and job creation.

That’s why there’s growing industry and government interest in encouraging ISA investments into UK equities. Arguably, a stronger culture of public share ownership could help address the UK’s listing decline and make growth companies more likely to stay and scale up in Britain.

Of course, you can open and contribute to both a Cash ISA and a Stocks & Shares ISA in the same tax year, and with different providers, as long as your combined contributions do not exceed the annual ISA allowance of £20,000. For example, you could place £10,000 in a Cash ISA and the remaining £10,000 in a Stocks & Shares ISA.

This strategy allows you to diversify your approach, keeping a portion of your money safe and accessible while putting the rest to work in the markets.

When you open as ISA, you can take your money out at any time, but not all ISAs are made equal. If you withdraw your money from some ISAs, the money withdrawn will still count towards your annual allowance. We offer flexible ISAs, which allow you to withdraw money without affecting your allowance, meaning you can redeposit at a later time. 

Cash ISA vs Stocks & Shares ISA summed up

• An Individual Savings Account (ISA) lets UK residents save or invest up to £20,000 per tax year, with all returns sheltered from capital gains tax and dividend tax*
• Cash ISAs function like savings accounts but with tax-free interest, making them popular for short-term goals and emergency funds, but low interest rates and inflation can erode purchasing power
• Stocks & Shares ISAs offer higher growth potential with risk, making them suitable for long-term investors. They allow tax free investing in shares, funds and bonds — but values can fluctuate and there’s no guarantee of returns
• It’s possible to hold both types of ISA in the same tax year (within the £20,000 limit), allowing a balance between safety and growth potential 

*Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

*Other fees may apply.

*For full terms and conditions, see our fees page.