What is a Cash ISA?

A Cash ISA is a savings account that enables you to earn tax-free interest on your savings. Anything you save into a Cash ISA will count towards your annual £20,000 ISA allowance – which is shared with other ISAs you might have (including a Stocks & Shares ISA or a Lifetime ISA).

Please note, tax treatment depends on individual circumstances and is subject to change.  

Learn about the differences between a Cash ISA and a Lifetime ISA

There are different types of Cash ISA out there – including ‘fixed-rate’ and ‘variable rate’ (sometimes also called ‘easy access’). Fixed-rate means that you’ll have to lock your money behind a notice period to earn a higher interest rate, while easy access means your money will be with you quickly if you need it – usually at the expense of slightly lower interest when it comes to fixed-rate accounts. 

Learn more about the different types of Cash ISA and which might be best for you

 

Advantages of a Cash ISA

Here are some of the main benefits of a Cash ISA. This list is by no means exhaustive, and there are other benefits that we’ve not included here. These are just some of the top ones that should matter to most people when deciding if a Cash ISA is the right account for them.

  • Accessibility: if you choose an easy access Cash ISA, you’ll often have access to your money the next working day if you make a withdrawal.
  • Low risk: Cash ISAs are a low-risk way to build your wealth because your money is held as cash and it earns interest. Your money is not invested in the stock market with a Cash ISA, so it isn’t exposed to the attached risks.
  • Tax benefits: Cash ISAs let you earn tax-free interest. This can significantly boost your returns compared to regular savings accounts, especially if you’re a higher rate taxpayer.

Learn more about the advantages of Cash ISAs vs regular savings accounts

 

What is a Stocks & Shares ISA

A Stocks & Shares ISA is an investment account that enables you to invest your money into the stock market. You’ll do this, usually, by investing in tracker funds – but you can also invest in stocks if you’ve got favourites that matter to you. Any money you invest with a Stocks & Shares ISA will count towards your £20,000 annual ISA allowance, and you won’t pay any tax on your investment gains.

When compared to a Cash ISA, a Stocks & Shares ISA comes with a higher risk of losing money – but also the potential for higher returns. Higher risk doesn’t mean that you’re guaranteed to lose your money. In fact, if you stick to a long-term time horizon of five years or more, the odds are that the money you invest will increase in value. These odds go up the longer you leave your money invested.

Learn more about investing with a Stocks & Shares ISA

 

Advantages of a Stocks & Shares ISA

Here are some of the main advantages of investing with a Stocks & Shares ISA. Just like the Cash ISA section, these aren’t all of the advantages – they’re just the main ones that should help you decide whether the account is for you or not. 

  • Potentially higher returns: as an investment account, Stocks & Shares ISAs have the potential for higher returns compared to savings accounts like Cash ISAs. That’s especially true over a long time frame, which usually means five or more years.
  • Spread your risk: while investing is riskier than saving your money as cash, you can invest your money across different asset types and stock market sectors, which will help to reduce your risk.
  • Tax benefits: Stocks & Shares ISAs are great for building your wealth over the long term because any investment growth you experience won’t be hit by tax. Over time, this can really play to your advantage.

 

Should you open a Cash ISA or a Stocks & Shares ISA?

As a first stop, you should assess your risk tolerance and time horizon. If you’ve got a low tolerance to risk and you’ll need easy access to your money, an easy access Cash ISA may be the better choice. 

With the Moneybox Cash ISA, you’ll earn 4.75%*AER (variable) on balances of £500 or more, which includes a bonus rate of 0.50% for the first 12 months after opening your Cash ISA. A lower rate of 0.75% AER (variable) applies if certain account conditions aren’t met. You can read these in-app before you open a Cash ISA.

*New customer rate as of 13/05/2024. 4.75% AER (variable) includes a bonus rate of 0.50%. A lower rate of 0.75% AER (variable) applies if account conditions aren’t met. Cash ISA interest is accrued daily and paid yearly. The rate is variable and subject to in-app conditions. We’ll inform you if it changes. 

 

Open a Cash ISA

 

But, if you’re comfortable accepting more risk for potentially higher returns on your money, you might want to consider a Stocks & Shares ISA. Moneybox’s Stocks & Shares ISA makes investing easy – whether you’re starting from scratch or a seasoned hand. You just need to choose one of three pre-made portfolios to get started – and you can always customise this later to bring in more funds and individual US stocks.

 

Open a Stocks & Shares ISA

 

That said, there’s no reason why you can’t have both a Cash ISA and a Stocks & Shares ISA. In fact, by having both you’ll be getting more out of your annual ISA allowance, and setting yourself up to achieve different financial goals at the same time.

Read our FAQ on Stocks & Shares vs Cash ISA