What’s the Difference Between a Cash ISA and an Investment ISA?

What’s the Difference Between a Cash ISA and an Investment ISA?

Exploring the Difference Between a Cash ISA and Investment ISA

The key differences between a cash ISA and an investment ISA can be distinguished on the basis of having a definition of the two.


Investment ISA

An investment ISA is a type of savings account with a tax-free allowance of £20,000.

This is also known as a stock and shares ISA, as you are investing your money into the current market in the hope of an investment return. Depending on which provider you choose, you will be given a multitude of options of where you wish to invest your money and where you want your shares to remain or move.

This type of ISA has a great potential for growth, depending on the stock market’s current state. It should be noted that this has the potential to both grow and fall, and should be considered wisely.

Cash ISA

A cash ISA is more of your typical saving accounts approach. Again, you won’t have to pay tax on the interest you have accumulated.

Depending on your provider, you can have the option of either fixed or variable interest rates. Some providers may require you to leave your money in an account for a select period, whereas for others you will be able to make withdrawals. Some withdrawals will result in lost interest, whereas others can remain the same if paid back within the same tax year.

In comparison to stocks and shares ISA, cash ISA doesn’t have the same potential for growth but is still subject to growth with interest.

Deciding which ISA is more suitable for you is purely a personal preference, depending on your financial situation. If you are serious about investing your money and are wanting to do so on a long-term basis, a stocks and shares ISA could work in your favour.

Say you have a lump sum that you do not require to touch for five years, if the stock market allows, you could have the potential to grow this money. But if you already know that you may need to withdraw this money in years to come or you’re simply not too fussed about a tax allowance of this amount, then a cash ISA could be the one for you.

For more advice on how to manage your savings, it is always best to consult with a financial advisor in regards to what options are available.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.