If you’re a regular saver and you’re disappointed by the returns and rates on offer from cash ISA accounts, you’re not alone.
It looks like more and more savvy savers are looking elsewhere to grow their savings, opting to use a stocks and shares ISA instead. Read on to find out the difference between these accounts, why you might want to consider switching and how to actually transfer your ISA.
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What’s the difference between a cash ISA and a stocks and shares ISA?
You can use your full £20,000 ISA allowance with both of these accounts, but there are some key differences:
- Cash ISAs work like regular savings accounts except that there is a wrapper protecting your returns from tax. There will be an agreed interest rate that won’t change without prior notice or warning.
- Stocks and shares ISAs are for investing your savings and any returns are also shielded from tax. You can potentially grow your savings much faster, but there’s also the risk of losing money.
How many people are moving away from cash ISAs?
According to data from Moneyfacts, a surprising number of savers are sticking with cash accounts, even with poor returns. In the 2019/20 tax year, over 13 million adult ISA accounts were opened and a significant 75% of them were cash ISAs.
So, only a small portion of savvy savers in the UK realise that they have the opportunity to get much higher returns with a stocks and shares ISA.
Why are they switching away from cash ISAs?
In the past, most cash ISA accounts had decent interest rates. However, right now, the rates on offer are pretty abysmal. Considering inflation figures are so high, in most cases, your savings will actually lose value if held in a cash ISA.
Because of this, some people are exploring the possibility of switching to a stocks and shares ISA where there is a much better chance of a higher return.
What are the rules for switching from a cash ISA to a stocks and shares ISA?
If you’re disheartened by the lacklustre return from your cash ISA, you should consider looking into a top-rated stocks and shares ISA account.
You can switch accounts and transfer your ISA balance over to a stocks and shares ISA quite easily. Just remember that when transferring an ISA balance, you should use the provider’s transfer service. Don’t withdraw the money and move it yourself.
If you’ve paid into your cash ISA this year and want to transfer, you have to transfer the whole balance. But if it’s an ISA from previous tax years, you can choose how much you transfer.
You also have the ability to spread your £20,000 ISA allowance however you’d like across these accounts. So, you can keep some of your savings in cash and then invest some in a stocks and shares ISA to try and get a better return.
Where can you find great stocks and shares ISAs?
There are so many companies out there offering stocks and shares ISAs that it can be hard to work out all the differences. Luckily for you, we’ve done loads of research to compare providers and put together a list of top-rated stocks and shares ISA accounts. You’ll find different categories of ISAs that will suit you depending on how you’d like to invest.
If you’re completely new to the world of investing, we’ve got your back! Check out our complete guide to share dealing to get a better understanding.
Keep in mind that different types of investment carry different levels of risk. So, while you have the opportunity for greater returns, you can also lose money. Make sure you do plenty of research before investing.
Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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About the author
George is a freelance writer focused on educating others in personal finance, tax, and investing. He’s a qualified Financial Adviser and previously worked within property and insurance in a number of different countries…. Read More
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