Cash ISA vs stocks and shares ISA

An ISA is not a product. It is a wrapper you put a product inside, and the wrapper's job is to keep the tax off. What goes in the wrapper is the actual decision.

The limit is £20,000 across all your adult ISAs in the 2026/27 tax year. That is one shared pot, not one per account: split it however you like between a cash ISA, a stocks and shares ISA, an innovative finance ISA and a Lifetime ISA.

• A Lifetime ISA sits INSIDE the £20,000, and has its own lower cap of £4,000 a year.
• A Junior ISA is SEPARATE: it is a child's own £9,000, which does not touch your allowance.
• The allowance resets at the start of each tax year and does not carry forward: whatever is unused is gone.

A savings account where the interest is not taxed. The balance does not fall. The risk is quieter than it looks: if the rate is below inflation, the money is safe in pounds and shrinking in what it buys.

Cash in an ISA is protected by the FSCS, to a limit of £120,000 per person, per authorised firm, the same as any other deposit.

The same tax wrapper around investments: funds, shares, bonds. No tax on growth and no tax on dividends inside it. The value can fall as well as rise, and you could get back less than you put in.

Investments are covered by a separate FSCS limit of £85,000 per person, per firm. That limit covers the firm failing. It does not cover your investments falling in value, which is a normal thing for investments to do.

The usual dividing line is time, not temperament. Money you might need within a few years has to still be there on the day you need it, which is a cash job. Money with a decade or more ahead of it has time to ride out the falls, which is what investing needs to work.

Plenty of people hold both, for different jobs. Neither is a better product; they answer different questions.

Worth asking honestly. Outside an ISA, the Personal Savings Allowance already covers £1,000 of savings interest tax-free for a basic-rate taxpayer and £500 for a higher-rate taxpayer. Investments outside a wrapper have a £500 dividend allowance and a £3,000 capital gains exempt amount.

Those allowances are smaller than they used to be, and the ISA's advantage grows as your balance does. It also compounds quietly: a pound inside the wrapper stays inside it, year after year, without a tax return.

A cut to the cash ISA limit for under-65s was announced, and Budget 2026 decided not to make it. The cash ISA limit stays at £20,000 a year, for every age.

A LISA can be opened between ages 18 and 39 and adds a 25% government bonus on what you pay in, up to the £4,000 annual cap. It comes in cash and stocks-and-shares versions, so it is a wrapper choice on top of a wrapper choice.

• Penalty-free for a first home costing £450,000 or less, held at least 12 months first.
• Penalty-free from age 60, with no first-time-buyer requirement.
• Any other withdrawal carries a 25% charge, which takes back more than the bonus gave.

For retirement specifically, a LISA is one eligible option among several, with real trade-offs against a pension: a pension can carry higher-rate relief and an employer match, and has no equivalent annual cap, while a LISA locks the money away until 60 and counts toward means-tested benefits. Which fits is a genuine suitability question rather than a default answer.