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Cash ISAs vs. share ISAs
Updated: Tuesday 14 June, 2011
By Hazel Cottrell hazel.cottrell@consumerchoices.co.uk
What is the difference between cash ISAs and shares ISAs and how do I know which is right for me?
Both cash ISAs and stocks and shares ISAs allow you to shelter your money from the taxman, but in two very different types of asset.
Cash ISAs, which are simply tax-free savings accounts, are pretty much suitable for everyone, while 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 below:
| Cash ISAs | Stocks and shares ISAs |
| Good for short term savings - Cash ISAs are great for the short term as they usually offer easy access to your cash. | Must be long term - To get returns on your investment it is recommended 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 - If you invest shrewdly, there is no limit to the return you can make on your investments. |
The ISA you decide to invest in really does depend on your own personal circumstances, savings and investment objectives and the length of time you can lock away your money.
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 their money.
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 an 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.