Cash Isa vs stocks and shares Isa: what to choose in a shifting policy landscape

LONDON — As policymakers signal a shift to encourage longer-term investing, Isa choices are back in focus for UK savers. Chancellor Rachel Reeves has been linked to plans to nudge cash savers toward investments and to review the size of the cash Isa allowance, potentially reducing how much can sit in cash tax-free.

An Isa, or individual savings account, shelters both growth and interest from UK tax. The two main flavours are cash Isas and stocks and shares Isas. The annual allowance is £20,000 across all Isas in a tax year, and funds can be split between accounts. It remains possible to hold both a cash Isa and a stocks and shares Isa in the same year, allowing savers to tailor for shorter-term needs and longer-term ambitions. Savers should note that a lifetime Isa is limited to one per year, up to £4,000, which counts toward the overall £20,000 allowance. If a withdrawal is made and then redeposited, that can deplete the allowance unless the account is a flexible Isa that allows replacements within the same tax year.

How does a cash Isa work? Cash Isas operate like standard savings accounts but with the benefit of interest that is free from income tax. They carry very little risk of losing the deposited cash, but savers should weigh inflation against the rate on offer. If inflation outpaces the rate, purchasing power falls over time. Fixed-rate cash Isas lock in a rate for the term, but often restrict access to funds; early withdrawal can incur penalties. Easy-access cash Isas offer more liquidity, but rates are typically more variable and can move with the Bank of England base rate. In a high-inflation environment, even the best cash Isa may underperform versus longer-term goals.

In a stocks and shares Isa, the money is invested rather than simply saved. Returns come from investment growth and income from dividends or bonds. Access is usually flexible, but investment risk means you can lose money, especially in shorter periods. Experts generally advise keeping money invested for at least five years to smooth out volatility. Over the long run, shares and funds have a greater potential to outpace inflation, though there is no guarantee.

Stocks and shares Isas shield investment gains and dividends from capital gains tax and dividend tax, and they can shelter income tax on bonds. Investors must choose an investment platform, and many platforms levy fees for trading and holding investments. Some providers offer ready-made portfolios or managed funds, which can be more costly than self-selected options. Costs vary widely, so savers should compare admin charges, dealing costs, and ongoing fees when choosing a platform. This is Money has reviewed a range of platforms to help savers weigh options, including AJ Bell, Hargreaves Lansdown, Interactive Investor and others, noting that affiliate links may apply for some accounts.

Can you have a cash Isa and a stocks and shares Isa? Yes. Holding both types can align with different goals: a cash Isa for near-term needs or emergencies where liquidity and low risk matter, and a stocks and shares Isa for longer-term ambitions such as education funding, home deposits or retirement.

Choosing between cash and stocks and shares Isas depends on time horizon, risk tolerance and financial goals. For holiday plans or home improvements within a few years, a cash Isa can provide straightforward access and capital preservation. For longer-term aims—typically five years or more—investing through a stocks and shares Isa offers the potential for higher returns to outpace inflation. Pensions remain a separate vehicle for retirement savings and should be used alongside Isas where appropriate.

Investing online is simple and affordable, and savers can compare a broad spectrum of investing platforms, ISAs and related products from a computer, tablet or phone. Platform costs can include administration charges, trading fees and optional managed services. This is Money’s guide to the best investing platforms highlights the importance of understanding what you are paying for and choosing a service that matches your investing plan. The platform table below summarizes typical charges but savers should perform their own checks before opening an account. Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links with an asterisk, This is Money may earn an affiliate commission. We do not allow this to affect editorial independence.

Platforms featured below are independently selected by This is Money’s specialist journalists. If you open an account using links which have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect editorial independence. DIY INVESTING PLATFORMS AND STOCKS & SHARES ISAS Admin charge Charges notes Fund dealing Standard share, trust, ETF dealing Regular investing Dividend reinvestment AJ Bell* 0.25% Max £3.50 per month for shares, trusts, ETFs. £1.50 £5 £1.50 £1.50 per deal More details Bestinvest 0.40% (0.2% for ready made portfolios) Account fee cut to 0.2% for ready made investments Free £4.95 Free for funds Free for income funds More details Charles Stanley Direct* 0.30% Min platform fee of £60, max of £600. £100 back in free trades per year £4 £10 Free for funds n/a More details Etoro* Free Stocks, investment trusts and ETFs. Limited Isa, no Sipp. Not available Free n/a n/a More details Fidelity* 0.35% on funds £7.50 per month up to £25,000 or 0.35% with regular savings plan. Free £7.50 Free funds £1.50 shares, trusts ETFs £1.50 More details Freetrade* Basic plan with Isa free, Standard £5.99 (gives access to funds), Plus (with Sipp) £11.99 Stocks, investment trusts, ETFs, limited choice of funds. Free Free n/a n/a More details Hargreaves Lansdown* 0.45% Capped at £45 for shares, trusts, ETFs Free £11.95 Free Free Free More details Interactive Investor* £4.99 per month under £50k, £11.99 above, £10 extra for Sipp Free trade worth £3.99 per month (does not apply to £4.99 plan) £3.99 £3.99 Free £0.99 More details InvestEngine* Free Only ETFs. Managed service is 0.25% Not available Free Free Free More details iWeb Free £5 £5 n/a 2%, max £5 More details Trading 212* Free Stocks, investment trusts and ETFs. Not available Free n/a Free More details Vanguard Only Vanguard's own products 0.15% Only Vanguard funds Free Free only Vanguard ETFs Free n/a (Source: ThisisMoney.co.uk April 2025. Admin % charge may be levied monthly or quarterly