Which is better for your money: an ISA with cash or one with stocks and shares?

The argument between lower-risk cash ISAs and higher-returning stock and share ISAs ignores the fact that both are crucial for various objectives

Your financial situation and your objectives will determine whether investing or saving is the best course of action. For example, before considering locking money away, like in investments, it is advised that people maintain an easily accessible emergency savings account that covers three to six months' worth of necessities.

Putting money into savings accounts or cash ISAs will give you the assurance that it will increase in value over time. Even though the best cash ISAs usually offer above-inflation rates of about 4.47 percent as of November 2025, proponents of investing frequently point out that, in real terms, cash holdings tend to be eroded by inflation over time.

According to recent research by AJ Bell, a £1,000 deposit made into the typical cash ISA when ISAs were first introduced in 1999 would now be worth £2,079. With a typical UK All Companies fund, the same investment in UK stocks would be worth 3,787, nearly twice as much.

Laura Suter, director of personal finance at AJ Bell, stated, "These figures highlight the hidden cost of playing it safe." Although having cash on hand can be convenient, it's a surefire way to lose purchasing power over time. A "

According to AJ Bell's exclusive research for BFIA, a stocks and shares ISA investing in international equities returned 9.6% last year, compared to the average cash ISA's 3.5%. In contrast, the average return on an ISA invested in a UK equity fund was 6.9%. (Sources: total returns in GBP through August 31, 2025; AJ Bell; Bank of England; FE). I).

In what ways do cash and regular investments differ?

According to AJ Bell's analysis, investing £1,000 annually in UK stocks since 1999 would be worth 67,866 today, as opposed to just £36,290 if the same payments were made into a cash ISA.

During that time, the UK stock market has lagged behind its international rivals. A yearly investment of £1,000 in international stocks would now be worth £92,000, whereas a similar investment in US stocks would have grown to £127,887, more than three times the size of the cash equivalent.

The source is AJ Bell/Bank of England/FE. Information from April 30, 1999, to September 30, 2025. The average performance of the sector, including fund charges, is displayed in investment figures; inflation is measured by the CPI; and cash ISA returns are determined by the average interest rate available.

According to Suter, "the power of compounding has made regular investing particularly powerful, turning steady contributions into six-figure sums." "The investment in the typical North American fund would be almost five times the total contributions over that 26-year period. A "

Is stock investing riskier than cash investing?

Compared to cash holdings, stocks are more volatile in the short term and have the potential to lose nominal value, which means that your investments' non-inflation-adjusted value may decrease while cash cannot.

According to Suter, "there will always be periods of volatility and markets don't move in a straight line." For short-term investors, this makes stocks riskier than cash.

In real (inflation-adjusted) terms, however, there is evidence that stocks are a safer investment over the long run.

According to Barclays' research conducted since 1899 on the real returns on cash, UK stocks, and gilts, the longer you hold any of these assets, the less your real returns fluctuate. The minimum and maximum return on equity exceeded the equivalent for either cash or gilts over more than 20 time periods.

This discrepancy between stocks and cash over various time periods emphasizes the need for a balanced approach rather than an either/or strategy.

"The most important question when deciding between a cash ISA and a stocks and shares ISA is: are you saving for the short term or the long term" Suter stated. "A cash ISA is a good choice if you're saving money for an emergency fund, which usually covers three to six months' worth of expenses. The "

In this manner, any cash you may require in an emergency or on short notice is safe and readily available.

However, Suter thinks a stocks and shares ISA is better than a cash ISA for long-term objectives like retirement plans or home improvements.

"Despite short-term fluctuations, markets tend to rise over time and outperform cash," she said.

Investment ISAs may be more appropriate for clients with a longer time horizonroughly five years or moreand a tolerance for investment risk, according to Scott Gallacher, director of the advisory firm Rowley Turton. However, cash ISAs are frequently the better choice for shorter time periods (less than five years) or for people who prefer caution. A "

One or more ISAs may receive a total of 20,000 annually (as many as you like, as long as the total allotted annually across all of them does not exceed 20,000).

You have the freedom to move money between them or take it out whenever you want, and the money they hold is tax-protected.