Written by a human, not AI
If you're putting money away over the long term, you might be wondering whether to use a cash ISA or a stocks and shares ISA.
Back in autumn 2025, the then Chancellor of the Exchequer, Rachel Reeves, announced plans to reduce the cash ISA allowance limit with the aim of encouraging more people to invest.
She explained that if had a person had saved £1,000 every year in a cash ISA since April 1999, this would have been worth roughly £55,000 less on that day than if they had invested it in a stocks and shares ISA.
A year later, it was announced that this change wouldn't go ahead.
Investing may not be the right choice for everyone. If you're expecting to need the money in your savings within the next five years, for example, you might choose to save rather than invest due to investment risk.
But for those who don't anticipate needing their savings in the near future, is it time to consider a stocks and shares ISA for your long-term savings? Before you decide, let’s explore what cash ISAs are and what might lead someone to open a stocks and shares ISA either instead or as well.
What are cash ISAs?
Cash ISAs are a type of savings account that earn interest on your money and aren’t invested.
Your money grows by the interest rate you get on your cash ISA but it's worth being aware that there is a risk inflation might be higher than the interest rate you're getting. In this situation, your money may be able to buy less when you withdraw it than it can now, even if it has gained interest.
As with all ISAs (including stocks and shares ISAs), no matter how much money you make, you won’t pay any Income Tax or Capital Gains Tax on the money you take out. That’s what makes ISAs different to other types of saving accounts.
But it’s worth noting that not everyone needs to pay tax on their savings anyway, so this advantage isn't relevant to everyone.
Pros and cons of stocks and shares ISAs
When you pay into a stocks and share ISA, your money is invested. It’s pooled with other investors’ money and used to buy different types of investment, which could be assets like property and shares in companies, for example.
The value of your account changes as the value of those investments goes up and down.
This gives your money better potential to grow than it has in a cash ISA where it’ll grow with interest rates. But with stocks and shares, the value will go both up and down over time. So, there is a risk that you could get back less than you pay in, if you withdraw your money at a time when the value is low.
| Pros | Cons |
|---|---|
| Greater potential to grow than options that rely on interest rates | Recommended for longer-term investing (five years or more) |
| Annual allowance limit likely to remain £20,000 (this is the same as the cash ISA limit) | Risk that you could lose money, if you withdraw at a time when the value has gone down (this is more likely to be the case if you're investing short term) |
Do I need to pay tax on my savings?
If your money is in a non-tax-exempt account and you pay basic rate tax (you earn between £12,571 and £50,270), you can make up to £1,000 a year in interest or investment returns on those savings before you need to pay any tax on it. If you’re a higher rate taxpayer (you earn between £50,271 and £125,140), you can make up to £500 a year in non-tax-exempt savings before being taxed on it.
This is known as your Personal Savings Allowance.
If you make less than this from saving and/or investing, you won't pay Capital Gains Tax or Income Tax on this money, even if it's not in an ISA.
Tax treatment depends on individual circumstances and may be subject to change.
Open a OneFamily Stocks and Shares ISA
Simply choose one of our three climate-focused funds to start investing in our Stocks and Shares ISA.
As the name suggests, our Stocks and Shares ISA invests in stocks and shares. The value is therefore likely to go up and down over time.
This is normal for this type on investment, but it means there is a risk you could get back less than you put in if you withdraw at a time when the value is lower.
