Cash ISA vs Stocks and Shares ISA

ISA ask the expert

I have about £120,000 in my bank ISA but the interest rate I’m getting is really low.  The bank has written to me to suggest I move my money into a Stocks & Shares ISA but I’m not sure if I want to do that.  What do you think?

Carl responds:

My first concern is that cash investments – savings accounts or Cash ISAs – are unlikely to provide returns that can keep pace with the cost of living.  This is especially true when interest rates are low and/or inflation is high.  This sadly means your money is losing real value over time.

Secondly, I see you have £120,000 with a single bank.  In the event of your bank failing, you would only be protected by the Financial Services Compensation Scheme for up to £85,000 per bank, building society, or credit union.

This might seem to suggest that you should indeed move your money, but not necessarily into another account with your current bank.  Stocks & Shares ISAs are widely available and have a better potential to deliver inflation-beating returns but it’s important to understand that investing in stocks and shares will always involve an element of risk:  values will vary over time, and you could lose money if you cash in investments at a time of lower values.

I strongly recommend that you work with an independent financial adviser to build a financial plan.  The adviser will help you explore your investment objectives and ensure that the investments you choose for your portfolio are suitable for your needs and attitude to investment risk.

If you do decide to move your Cash ISA savings to a Stocks & Shares ISA account, please ensure you do so using an ISA transfer.  Don’t withdraw the money then open a new ISA account:  if you do this, your investment will be treated as new money into an ISA and you will be limited by the annual ISA allowance, which currently stands at £20,000.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.