Savings account Guides

Cash ISAs vs. share ISAs

Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

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What are the differences between cash and shares ISAs and how do I know which is right for me? (Updated 7/8/09)

Featured ISA providers

Company	Package name
	Santander Direct ISA
Santander Direct ISA - The Santander Direct ISA offers a great rate of 2.75% (2% for balances under £9,000), save tax free from £1.
	Legal & General Share ISA
Managed Share ISA - Invest your ISA allowance in a fund actively managed by a professional fund manager.

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Both cash ISAs and stocks and shares ISAs allow you to shelter your money from the taxman, but they are very different products.

Cash ISAs, simply tax-free savings accounts, are pretty much suitable for everyone, whereas stocks and shares ISAs are more complicated and do involve an element of risk.

The main differences between cash ISAs and stocks and shares ISAs are outlined in this table:

Cash ISAs	Stocks and shares ISAs
Good for short term – Cash ISAs are great for short term savers as they usually offer easy access to your cash.	Must be long term – To get returns on your investment, it is recommended that you leave your cash invested in a stocks and shares ISA for at least five years.
Risk free – As long as you ensure the interest you are receiving beats inflation and that your ISA provider is covered by the FSCS, the value of your ISA cannot fall.	Always involves an element of risk – Because they are based on investments, the value of a stocks and shares ISA can decrease as well as increase.
Limited returns – You will only earn a set amount of interest on your savings.	Unlimited returns – There is no limit to the return you can make on your investments.

Whether you decide to invest in a cash ISA, stocks and shares ISA or both, really does depend on your own personal circumstances, investment objectives and whether you are investing for the short or long term.

For the first time saver, a cash ISA is certainly the place to start. Cash ISAs are more secure and good for those who can’t afford to risk losing capital.

However, stocks and shares ISAs can be very tempting. Over the long term, equities do tend to outperform cash and bonds but they are more volatile and do involve a variable element of risk.

For more guidance on whether a stocks and shares ISA might suit you, see our guide to shares ISAs and consider consulting an independent financial adviser.

Featured ISA providers

Company	Package name
	Santander Direct ISA
Santander Direct ISA - The Santander Direct ISA offers a great rate of 2.75% (2% for balances under £9,000), save tax free from £1.
	Legal & General Share ISA
Managed Share ISA - Invest your ISA allowance in a fund actively managed by a professional fund manager.