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ISAs: cash vs stocks and shares
Around 14.4 million Brits have a cash ISA, according to the latest HMRC figures, while 4.2 million have a stocks and shares ISA. Despite this, stocks and shares ISAs are worth a lot more – around £430.1 billion, versus £294.3 billion.
This can partly be explained by the fact that the average investor puts around £7,200 per year in their stocks and shares ISA. Meanwhile, the average saver puts around £4,300 in their cash ISA.1
It can also be explained by the stock market’s long-term outperformance.
Investment returns almost always beat cash over the long run, provided you are willing to ride out some short-term volatility. See our analysis on saving versus investing. A minimum investment horizon of three-to-five years is usually recommended.
1Based on average subscription amounts between 2008 and 2023, sourced from the latest HMRC report.
We need to talk about ISAs
An Individual Savings Account (ISA) is one of the most straightforward tools you can use to reduce your tax bill. There are lots of different types of ISAs on the market, but the general gist is that adults can stash £20,000 in an ISA each tax year and it will be shielded from income and capital gains tax.
Check out our ISA guide for the basics on how an ISA works, and the different types available, including:
- Cash ISA: This is the best way to protect your savings income from the taxman.
- Stocks and shares ISA: A vehicle which shields your dividends and capital gains from tax.
- Lifetime ISA: A tool which helps you save for your first home (or retirement), offering a valuable government bonus of up to £1,000 per year. The allowance on this ISA is lower, at £4,000 per year. This allowance is included within the £20,000 limit.
- Junior ISA: A savings and investment vehicle for under-18s. The limit on this account is £9,000. Adults can contribute to this on behalf of a child without using up a portion of their own £20,000 allowance.
- Innovative finance ISA: A tool which allows you to engage in peer-to-peer lending and enjoy tax-free returns. This type of ISA can come with bigger risks.
Welcome… four days to go!
Good afternoon, and welcome to our blog. There are just four days to go until the end of the tax year, when some of your 2024/25 tax-free allowances will disappear forever.
With the tax burden at historic levels, it is more important than ever to take advantage of tax-efficient tools like your ISA and pension. We’ll be live blogging some tips to make the most of your finances. Stick with us.
