Cash vs stocks: which is right for you after 2027?

What's the difference between a Cash ISA and a Stocks & Shares ISA

A Cash ISA works much like an ordinary savings account, except the interest you earn is tax-free. The amount you've paid in doesn't fall in value. A Stocks & Shares ISA is different: your money is invested in things like funds or shares, with the aim of growing over time, but its value can fall as well as rise along the way.

Learn more about the differences between a Cash ISA and Stocks & Shares ISA

How will the 2027 changes affect your choice

From 6th April 2027, anyone under 65 will be able to pay up to £12,000 into a Cash ISA each tax year. If you want to use your full £20,000 allowance, the remaining £8,000 will need to go into a Stocks & Shares ISA, an Innovative Finance ISA, or a Lifetime ISA.

To prevent people from holding cash inside a Stocks & Shares ISA - like in Available Cash with Moneybox - the government is also introducing a flat 22% charge on the interest earned from cash savings held in investment accounts. This means that there is a real reason to consider moving any Available Cash into your investments to avoid that new tax rule. 

When does a Cash ISA make more sense

Cash tends to suit money you might need in the not-too-distant future, whether that's an emergency fund or you’re saving for something in the next year or two. You know exactly what you'll have, and you’ll even earn a bit of interest on top.

However, the risk of holding your money in cash long-term is that over time, inflation will diminish its value. Inflation in the UK has risen by 54% since 2010 (an average of 2.92% a year). This means that £100 in 2010 had the same value as £154 in 2025.

In other terms, your money would’ve needed to earn at least 2.92% a year from cash interest rates just to keep its value - but the average savings rate over that 15-year timeframe was 1.79%. Saving your money in cash over the last 15 years then would’ve led you to actually lose money - but you wouldn’t have realised it. 

Explore a Cash ISA

When does a Stocks & Shares ISA make more sense

Investing generally suits money you won't need for five years or more, giving it time to recover from any short-term dips along the way. When you invest, you will need to accept - as all investors do - that short-term dips are totally normal and shouldn’t cause alarm. 

Looking at the markets on a day-to-day basis will mean you’re seeing more frequent fluctuations as markets react to different news stories, company releases, and geopolitical events. But if you zoom out from the day-to-day, you’ll see a clearer picture. That picture is one that shows investment markets historically rising over time - but past performance isn’t a perfect guide to future performance as no two years are the same.

That said, investing is a much better way of protecting your money from the effects of inflation when compared to cash savings. In contrast to the cash interest example, a Stocks & Shares ISA would’ve returned around 6.79% a year from 2010 to 2025, according to Moneyfacts. That's five percentage points more than the average Cash ISA over the same period. 

In money terms, that means £100 invested in 2010 would’ve grown to about £233 in 2025, compared with £130 in the average Cash ISA. Against inflation, that's roughly £79 ahead of the £154 needed to keep pace with rising prices - showing that historically investing is a more effective way to beat inflation.

Check out a Stocks & Shares ISA

Can you have a Cash ISA and a Stocks & Shares ISA

Yes, and for most people, holding both is the sensible approach. You can split your £20,000 allowance across a Cash ISA and a Stocks & Shares ISA in whatever proportion suits your goals, both this year and once the new rules take effect.

There's no need to pick one over the other for good. The right balance depends on what you're building wealth for, and it's perfectly reasonable for that balance to shift as your life does. And remember, money invested for five or more years typically outperforms cash, but it’s totally normal for your investments to go up and down in value along the way.

ISA and tax rules apply.