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Home > Blog > Investments > Cash ISAs vs Stocks And Shares ISA
Thinking about investing in an ISA but aren’t sure which one is right for you? Well read on for all you need to know about the differences between cash ISAs and stocks and shares ISAs, and the pros and cons of each to help you decide which option would suit you best.
A cash ISA is pretty similar to a regular savings account. However, with a cash ISA, there’s no income tax to pay on any interest you earn and you can only pay into one cash ISA in any given tax year. Whereas you can have as many regular savings accounts as you like. There are a few different types of cash ISAs depending on when you want to access your money. These include:
You can also get cash ISAs for children called Junior ISAs or Lifetime ISAs which can help you buy your first home.
Different cash ISAs come with different interest rates and have different rules attached.
Cash ISA limits do exist which means the government dictates how much you can save into your ISA each tax year while still enjoying the tax-free benefits.
Currently, per tax year you can put up to £20,000 in an ISA and spread that allowance across any combination of cash, stocks, and shares, lifetime or innovative finance ISA. You can’t pay into more than one type of cash ISA in a tax year.
There are a number of reasons why you might decide that a cash ISA is right for you:
However, some people choose not to open a cash ISA for a variety of reasons:
Stocks and shares ISAs are a way to save money long-term. Sometimes known as “investment” or “equity” ISAs, the money you put into the ISA is used to buy shares, funds and other types of investments. The funds are free from UK capital gains and they’re tax-free.
For a more in depth explanation of stocks and shares ISAs you can read our article, The Definitive Guide To Stocks & Shares ISAs.
There are a number of reasons that a stocks and shares ISA could be the right investment for you
Capital at risk, the value of investments can go down as well as up, so you could get back less than you invested.
However, a stocks and shares ISA might not be for you. Here are some disadvantages associated with a stocks and shares ISA:
You can cash in your stocks and shares ISA at any time. But you’d only really want to do this if the value of your investments had increased. Otherwise you’d end up losing money. You also need to keep in mind that any withdrawals from stocks and shares ISAs do not enjoy full flexibility of reinvestment. This means that even if you withdraw and reinvest money within the same financial year, it gets added to the annual allowance for the tax year.
Ultimately it’s your money and your choice but it is a great idea to get financial advice before choosing an ISA to invest in or dismissing them completely. Whether you choose to open a stocks and shares ISA or a cash ISA will really just depend on your:
If you want to you can open both a stocks and shares ISA and a cash ISA and split your £20,000 allowance between the two. But before you make a decision the best thing to do is speak to a professional ISA advisor.
If you’re still not sure what type of ISA is best for you, let’s have a chat. We’re independent ISA advisors that can help you make the best decision for you and your future. We even offer an ISA assessment service to give you a thorough understanding of how your current investments are performing, ﬁnd out your individual circumstances and investigate if there are more suitable products for you on the market. Give us a call on 0161 413 7051 or arrange a callback and we’ll give you a ring when it’s convenient for you
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