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

You'll likely have heard of a Cash ISA and a Stocks & Shares ISA but have you ever wondered what the differences are? If so, you're in the right place because that's what we cover in this guide...

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Knowing the difference between a Stocks and Shares ISA and a Cash ISA is very important when choosing which savings accounts is right for you. After all, there can be a significant difference in the returns that both savings accounts provide, so it’s important that you choose the right one for you and your financial goals.  

ISA stands for Individual Savings Account. The main difference between an ISA and any other savings account is that it offers tax-free interest payments, meaning they could help you get more for your money.

What is the difference between a Cash ISA and a Stocks & Shares ISA?

To help you understand the difference between a Cash ISA and a Stocks and Shares ISA, we’ve created a table to show you the key differences...

As the table shows, the main difference between a Cash ISA and a Stocks & Shares ISA is the fact that one holds your money in investments whilst the other holds it as cash, which impacts how much risk you’re taking.

In a Stocks & Shares ISA, your money is invested into several different assets such as shares in companies, bonds and property as well as cash. This means that your money is at risk, and the value of your savings can rise or fall depending on market conditions.  In a Cash ISA, the money that you choose to contribute earns a fixed rate of interest and isn’t at risk of losing value. However, Cash ISA interest rates are currently lower than the rate of inflation, so the buying power of your money is decreasing. You can read more about inflation in our blog.

There are some similarities between the two types of ISA. Both share the same annual tax year allowance which is set at £20,000 for the 2021/22 tax year. Your allowance is split between all types of ISA accounts you contribute to, and it isn’t £20,000 per account. This will reset every year on the 5th of April, you can find out more about this in the annual ISA allowance blog.

A Stocks and Shares ISA is best for those who want to invest for the long term - at least 5 years - and are willing to invest their money knowing that the value of their investments can rise and fall. On the other hand, a Cash ISA is great for short terms savers who are looking to save their money anywhere between 0 - 5 years. Putting your money into a Cash ISA is risk-free unlike a Stocks and Shares ISA.

To help you decide which account is best for you, we’ve created an investment calculator which compares the potential value of your money if you were to leave it into either a Cash ISA or any one of OpenMoney’s Stocks & Shares ISAs for at least 5 years.  

If you were to invest your money into any one of diversified investment portfolio like the ones offered at OpenMoney, the value of your savings could be far greater than if you were to leave it into a fixed rate Cash ISA. Remember that if you do invest your money, your capital (money) will be at risk, and you could get back less than what you originally invested.

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