£500 a month for 20 years grows to roughly £194,000 in a Cash ISA at 4.5%, and about £277,000 in a Stocks & Shares ISA at 7.5%. From April 2027 the government caps under-65s at £12,000 a year in cash anyway. Here is how to split the allowance.
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A direct comparison of features, rules, limits, and eligibility requirements.
| Feature / Detail | Cash ISA | Stocks & Shares ISA |
|---|---|---|
Annual limit today | £20,000 shared allowance: any split you like until 5 April 2027 | £20,000 shared allowance |
Annual limit from 6 April 2027 | £12,000 maximum for under-65s (65+ keep the full £20,000 in cash) | Up to the full £20,000 |
Risk to capital | None: deposits protected up to £85,000 per bank by the FSCS | Full market risk; values fall as well as rise |
Tax treatment | Interest 100% tax-free | Gains and dividends 100% tax-free, but from April 2027, interest on uninvested cash parked inside is charged at 22% |
Realistic long-run return | Tracks Bank Rate: around 4-4.5% on top accounts in mid-2026, variable | Global equity funds have averaged roughly 5-8% a year over long periods, unevenly |
Right time horizon | Money needed within about 5 years | Money you can leave for 5+ years through the dips |
Analyze the advantages and drawbacks of each financial product before making a decision.
Priya saves £500 a month. In a Cash ISA averaging 4.5%, twenty years of deposits (£120,000 in total) grow to roughly £194,000. In a Stocks & Shares ISA averaging 7.5%, the same deposits reach about £277,000. The difference, £83,000 — is more than she ever deposited in cash terms.
Notice where the gap lives: after five years it is only about £2,700, barely worth the volatility. By year ten it is £13,000; by year twenty it has exploded to £83,000. Compounding pays the patient and pays them late, which is exactly why the five-year rule is the honest dividing line between these products.
The cash number is not a failure, to be clear. It is the correct price of certainty for money with a deadline. The mistake is paying that price on money that has no deadline.
From 6 April 2027, savers under 65 can put a maximum of £12,000 a year into cash ISAs. The overall £20,000 allowance survives, but the remaining £8,000 can only earn its tax-free status inside a Stocks & Shares or Innovative Finance ISA. Savers 65 and over are exempt and keep the full cash allowance.
The reform comes with an anti-dodge mechanism: simply parking that £8,000 as uninvested cash inside a Stocks & Shares ISA won't work, because from the same date, interest earned on cash held in non-cash ISAs is charged at 22%. Cash inside a Cash ISA stays fully tax-free; cash pretending to be an investment does not.
Practical consequences: the 2026-27 tax year is the last chance for under-65s to shelter a full £20,000 in cash. From 2027-28, anyone with more than £12,000 a year of cash savings faces a real decision: invest the excess inside the wrapper, or hold it outside the ISA where the personal savings allowance (£1,000 for basic-rate taxpayers) is quickly exhausted at today's rates.
Run £10,000 through ten years at 2.5% inflation. In a 4.5% Cash ISA it becomes £15,530 nominal, but only about £12,130 of today's purchasing power. In a 7.5% equity portfolio it becomes £20,610 nominal, roughly £16,100 real. Cash preserved the money; equities grew it. Over a working lifetime, that distinction is the whole ballgame for wealth building.
This is why 'no risk' is a half-truth: a Cash ISA carries near-zero nominal risk and meaningful real risk. The right question is never 'can it fall?' but 'what is this money for, and when?'.
One piece of mechanics worth more than most rate-chasing: ISA transfers. Moving money from cash to stocks (or back) via your provider's official transfer process preserves the tax wrapper and uses none of this year's allowance. Withdrawing and re-depositing instead burns allowance and can breach the £20,000 cap. As April 2027 approaches and cash-heavy savers rebalance, the transfer form, never the withdrawal button, is how it is done.
The old answer still holds: money you will spend within five years belongs in a Cash ISA, money with a longer runway belongs in a Stocks & Shares ISA, because a 3-point return gap compounds to about £83,000 on £500 a month over 20 years. What is new is that the government has taken a side. From 6 April 2027, under-65s can put at most £12,000 a year into cash ISAs, and interest on cash hiding inside an investment ISA gets charged at 22%: the reform is explicitly built to push the remaining £8,000 toward markets. If you have been rolling the full £20,000 into cash every year, the 2026-27 tax year is your last chance, and your five-year plan for that money deserves a rethink before the rules make it for you.
Emergency funds, house deposits within 5 years, and anyone 65+ who keeps the full £20,000 cash allowance after 2027.
Every goal 5+ years out, retirement top-ups, children's funds, long-term wealth, for savers who can watch a bad year without selling.
The rules and figures on this page are researched from official primary sources:
