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5th
Aug 2020
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Investment ISA vs Cash ISA

Investment ISA vs Cash ISA

So, you've heard about all the benefits that opening an ISA can give you, and you'd like to take advantage of the tax-free savings you can make. But, which type of ISA will work best for you: a Cash ISA or an Investment ISA? The answer to this depends on who you are, and what you're looking to get from an ISA - but we've got all the information you need to make that choice.

An ISA is an excellent way to make sure that your savings are kept safe from the tax man in a tax-free wrapper. They’re a very attractive way of saving, but for a first-time ISA saver, it can be a bit confusing to try and decide which type of ISA is right for them. So, we’ve broken down everything you need to know to figure out which type of ISA suits you best.

What’s An ISA?

An ISA is also known as an individual savings account, the returns of which are kept safe from the taxman. These are regulated by the UK government who impose an annual “ISA allowance”: a cap on how much money they can put into one or more ISA accounts each year.

The maximum allowance for this current tax year 2019-2020 is £20,000 per person. You can choose whether you put all of that £20,000 into a Cash ISA account or spread it across different types of ISA accounts.

There are lots of different kinds of ISA accounts, including:

  • Cash ISAs
  • Investment ISAs
  • Lifetime ISAs
  • Innovative ISAs
  • Junior ISAs

What is the difference between a Cash ISA and an Investment ISA?

A Cash ISA

A Cash ISA is perhaps simplest to understand because it’s basically a cash savings account – similar to a bank savings account you might have alongside your current account. Interest accrues within the account in much the same way as it does within Savings Accounts.

There are lots of different types of Cash ISAs, including:

  • Instant access
  • Fixed-rate deals
  • Regular savers

An Investment ISA

An Investment ISA is generally a more long-term option. Your money will be put to work in an investment (as the name would suggest). You can choose between having an actively managed fund or a passively managed fund, depending on your preference.

Those investments should put your money into various stocks and shares, which should garner returns for you.

Why Should I Get a Cash ISA?

Whether a Cash or an Investment ISA is the right choice for you will depend on the type of person you are, and what your financial needs are. 

You might want to look at getting a Cash ISA if...

  • You're not particularly wanting to invest but still want to get the benefits of an ISA, then a Cash ISA should be for you. 
  • You know you may want access to the money sooner rather than later
  • You know you may need access to your funds at a fixed point (i.e. 1 or 2 years) 
  • You have a low risk tolerance, as Cash ISAs are lower risk than Investment ISAs 

Why Should I Get an Investment ISA?

You might want to look at getting an Investment ISA if...

  • You’re looking to invest your money rather than just putting it into a tax-free savings account, then an Investment ISA is for you.
  • You're already an investor and want to diversify your portfolio
  • You have a high risk tolerance
  • You want to take advantage of higher rates of interest offered by Investment ISAs. 

Can’t I have both?

Yes, you can! 

There is nothing stopping you from opening both a Cash and an Investment ISA, if you so wish. This can be a good way of diversifying your portfolio whilst also maintaining access to some of your funds through an Instant Access Cash ISA, for example. 

Read more about Investment ISAs.

Read more about Cash ISAs

Fixed Rate Cash ISAs

3 Year Fixed Rate Cash ISA

from Aldermore

Interest Rate (AER) 1.00%
  • Term: 3 Years

'Winner' – ISA Provider of the Year for the 5th year running Consumer Moneyfacts Awards 2011-15

  • £1,000 minimum opening balance

Calculate your interest with this plan

Your savings:
£
You could gain:
£0.00 (per tax year)
Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: 2,000+ Funds
  • Invest From: £50pm

Why we like it: Invest from as little as £50 a month or with a £1,000 lump sum. Investment choice from over 100 fund providers, giving you access to 2,000+ funds. One low-cost service fee of 0.35%*. Great service – from investment guidance on website through to UK-based phones team. PathFinder, Select 50, Investment Finder - investing tools for beginners to advanced investors. 24/7 access via online Account Management system.

* depending on how much you have invested

Special offer:

Invest and get £25 cashback » 

Build your savings with an ISA and receive £25. Exclusions, T&Cs apply.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Selected ISAs

Investment ISA

from Nutmeg

Allows ISA Transfers
  • Protection Scheme: FSCS
  • Fund Choice: Discretionary investment management
  • Invest From: Min. £500 single

Why we like it: Get an intelligent stocks & shares ISA portfolio - Choose a portfolio that's fully managed by our expert team or a fixed allocation portfolio. No tie-ins, no set-up fees, no exit charges. Easy, online set up in minutes. Start with as little as £500. Portfolio management fees of 0.45%-0.75% up to £100k. 0.25%-0.35% beyond £100k. There are also underlying investment charges, see our fees page. Plus, live chat, amazing customer support and brilliant investor tools and guides. Authorised and regulated by the FCA. Capital at risk. ISA rules apply
Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

What is a Peer to Peer ISA?

18th September 2020

A Peer to Peer ISA sounds complicated – but to the experienced and keen investor, it can be a great way to diversify your portfolio, try a new, innovative form of investing, while benefiting from the tax benefits associated with an ISA account. But what exactly is a Peer to Peer ISA, and which ones should you be looking at? 

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