Stocks & Shares ISAs versus Cash ISAs
Which is the best type of ISA for you?
Cash ISAs are simply tax-free savings accounts. You receive interest on your savings at the rate the bank offers. While there is minimal risk that you will lose the cash saved in such an account, with interest rates as low as they are currently, your money’s spending power could be eaten away by inflation over time.
But with a Stocks & Shares ISA you can hold a range of different investments including unit trusts, open-ended investment companies (OEICs), investment trusts, ETFs and single company shares. Simply put, you are able to take control of where your money is being invested and can do this in line with your own risk appetite. There is the potential to receive greater returns than you might get in a cash ISA.
The risks and rewards of Stocks & Shares ISAs
Rather than being offered a rate of interest (and sometimes having to hold your cash in an account for a set amount of time to achieve this rate), stocks and shares rise and fall in value depending on where they are invested. This means you have the potential to get back less than you invested subject to when you need access to your money.
Over the longer term, Stocks & Shares ISAs can deliver much higher returns than Cash ISA investments.
But although not guaranteed, over the longer term Stocks & Shares ISAs can deliver tangibly higher returns than cash ISA investments. You are also able to sell investments and keep the cash in your account without losing your ISA benefits as long as you are holding the cash with the intention of investing in the future.