Get more for your money with a stocks and shares ISA

A stocks and shares ISA could grow your money faster than a cash ISA. But what is it exactly and who is it suitable for?

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You’ve probably heard of a cash ISA - after all, more than 8 million of us pay into one each year.

But what about a stocks and shares ISA? This is a type of tax-efficient investment account, but it is nowhere near as popular as its cash-based cousin. Just 3.5 million people pay into a stocks and shares ISA each tax year.

A stocks and shares ISA is a great way to start investing for the first time, allowing you to save money and not worry about paying any tax when you make a profit or receive dividends.

If you already have investments like shares or funds, but these are not held in a stocks and shares ISA, it’s probably a good idea to move them into an ISA otherwise you could be paying tax on your holdings. 

A previous study by the insurer Prudential and the financial advice site found that 1 million people were holding investments outside of an ISA and failing to take advantage of their tax-free ISA allowance, collectively losing more than £100 million in tax. 

Ed Monk, associate director for personal investing at the investment firm Fidelity International, comments: “The golden rule is to keep your money inside an ISA because as long as it’s in the ISA wrapper you will retain the tax-free benefits.”

We explain what a stocks and shares ISA is, whether you can also have a cash ISA at the same time, the pros and cons, and whether you need lots of money to open one. 

What is a stocks and shares ISA?

A stocks and shares ISA is a tax-efficient wrapper that can hold a wide range of investments. You do not pay any income tax, capital gains tax or dividend tax on the holdings. The only tax you may have to pay is stamp duty when buying shares.

You can choose your own investments: maybe you want to buy some shares - like Tesco or Tesla - and a few funds that invest in, say, small companies, gold and property. Or you can invest in a ready-made portfolio where a manager chooses what to buy and sell.

Investing your money, rather than leaving it in a savings account like a cash ISA, has the potential to deliver far greater returns. But equally, if markets perform poorly then you could end up with less than you initially put into the account. 

Unlike a cash ISA, a stocks and shares ISA normally has some fees attached, such as an annual fee and/or a charge whenever you buy and sell investments.

If you’re wondering which investment platform might be cheapest to open a stocks and shares ISA, see this cost comparison on our sister site MoneyWeek.

In terms of how much you can pay into a stocks and shares ISA, all adults have an ISA allowance, which is the maximum they can save into their ISAs in any given tax year.

The ISA allowance for 2022/23 is £20,000, and it will remain at this level for 2023/24. This can be invested in just a single ISA, or split across different types of ISA, such as £5,000 in a cash ISA and £15,000 in a stocks and shares version.

So, you are allowed to pay into a cash ISA and a stocks and shares ISA simultaneously.

Monk comments: “It’s up to you how much of your allowance you want to allocate into each account, and at any time you can change your mind and transfer money from a cash ISA into your stocks and shares ISA or vice versa.”

Bear in mind that you do not have to pay in the full £20,000; this is the maximum, not a minimum. But also be aware that any unused allowance doesn’t carry over to the next year ‒ you have to use it or lose it, essentially.

For more information on the ISA rules, and the different types of ISAs, read our What is an ISA? guide. 

Is a stocks and shares isa risky?

A stocks and shares ISA could offer higher potential returns than a cash ISA, but you have to be willing to take some risk. It’s important to know that your investment could go down as well as up, and in the most drastic scenario you could even lose all the money you invest. There are no guarantees with investing.

Having said that, over the long term, investing in the stock market nearly always beats cash. And investing can be the best way to grow your wealth.

According to some long-running research called the Barclays Equity Gilt Study, UK shares have beaten cash in 90% of five-year periods since 1899.

So, if you’re happy to tie your money up for at least five years, investing could get you a better return than leaving the money in a savings account or cash ISA.

Pros and cons of stocks and shares ISAs


  • It’s tax-efficient
  • It could grow your money faster than a cash ISA
  • Lots of providers offer them, meaning you can choose one that’s right for you


  • Investing is risky and there are no guarantees
  • You can only pay in up to £20,000 each tax year (minus whatever you contribute to a cash ISA)
  • There are normally fees attached

Do I have to have lots of money to open a stocks and shares ISA?

This is a common misconception. You do not need to be rich to start investing. You can usually choose between investing a large amount (perhaps you received an inheritance, or got a bonus at work), or drip-feeding money into the ISA every month.

Most ISA providers including Fidelity, AJ Bell and Interactive Investor will let you invest as little as £25 a month. You can even get started with just £1 with the Moneybox stocks and shares ISA and Wealthify investment ISA.

Monk at Fidelity notes: “Whilst investing a large amount at once can be a good way to make your money grow, it isn’t the be-all and all. Drip-feeding small amounts into your ISA by setting up a regular saving plan is a great way to save without a lot of sacrifice.”

How do cash ISA and stocks and shares ISA returns compare? 

As mentioned previously, stocks and shares tend to outperform cash over long periods of time. Over shorter periods, like a year, the returns can be more variable.

According to the latest data from Moneyfacts, a financial information site, the average stocks and shares ISA fund experienced a loss of 3.27% between February 2022 and February 2023. In contrast, the average cash ISA returned 1.71%.

However, rewind the stats by a year, and there’s a very different picture. Stocks and shares ISAs enjoyed 6.92% growth between February 2021 and February 2022, while the average cash ISA returned just 0.51%.

Rachel Springall, finance expert at, comments: “Stocks and shares ISAs suffered an overall loss over the past 12 months. This should not be much of a shock considering the significant volatility felt across the markets over the past year, but it does emphasise the importance of keeping track of investments and ongoing fund performance. Cash ISAs have rebounded in comparison, thanks to competition and consecutive Bank of England rate rises.

She adds: “The right ISA for any saver will come down to their individual needs and those considering stocks and shares must keep in mind that past performance is never guaranteed to be reflected in future returns, so it’s vital investors are comfortable with their level of risk.”

How much tax could I save with a stocks and shares ISA?

It’s becoming increasingly important to shelter any investments inside an ISA due to the upcoming cuts in the dividend and capital gains tax (CGT) allowances.

The dividend tax annual allowance is set to be reduced from £2,000 to £1,000 from April 2023 and again to £500 from April 2024. Meanwhile, the CGT annual exemption is going from £12,300 to £6,000 in April 2023, and then £3,000 from April 2024.

According to the investment platform Interactive Investor, a higher-rate taxpayer earning £2,000 dividend income per year will go from paying no dividend tax to paying £338 from 6 April 2023, rising to £506 from April 2024.

A basic-rate taxpayer would face a dividend tax bill of £88 from the new tax year and £131 from April 2024.

This can be avoided by moving the investments into a stocks and shares ISA.

Myron Jobson, senior personal finance analyst at Interactive Investor, explains: “The shrinking dividend and capital gains tax allowances could provide the impetus for investors to invest through a tax-efficient wrapper if they haven’t already done so. Shifting investments into an ISA protects future gains and dividends from the clutches of the taxman.”

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Ruth Emery

Ruth Emery is contributing editor at The Money Edit. Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.