Cash ISA vs Stocks and Shares ISA
A Cash ISA pays interest like a savings account but free of UK income tax. A Stocks and Shares ISA holds investments and shelters dividends and capital gains. Both share the £20,000 annual ISA allowance. For money you might need within 1 to 3 years, Cash ISA wins because principal is preserved (and FSCS-protected to £85,000 per institution). For money you do not need for 7+ years, a Stocks and Shares ISA historically wins comfortably, with much higher volatility along the way. The Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate) means low-balance savers may not need a Cash ISA at all.
£10,000 in a 5.0% Cash ISA grows to £16,290 over 10 years, tax-free. The same £10,000 in a global tracker S&S ISA at ~7% real averages around £19,670 after 10 years, but with periods where it falls 30% or more along the way. Over 30 years the gap widens hard: the Cash ISA reaches roughly £43,000, the S&S ISA roughly £76,000 in today’s money.
Using a Cash ISA when your savings interest is already inside the Personal Savings Allowance. You are wasting precious ISA allowance on a tax shield you do not need. Use a high-interest savings account instead and put the ISA wrapper around investments.
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