Cash ISA vs investment ISA
Cash ISAs and investment ISAs both offer tax-efficient ways to save, but they work differently. Cash ISAs provide stability for short-term savings, while investment ISAs offer growth potential over the long term. Following the Autumn Budget 2025, key changes include a reduced cash ISA limit for under-65s and restrictions on transfers from investment ISAs. Understanding these updates can help you make informed decisions about your savings strategy.
Following the 2025 Autumn Budget, you may have noticed a lot of headlines about changes to ISAs, and you might be wondering how these could affect you. Individual Savings Accounts (ISAs) are some of the most popular savings products in the UK. They are also incredibly tax efficient and flexible: you can use them to build your cash savings or create an investment portfolio.
However, not all ISAs operate in the same way. Here are the key differences between a cash ISA and an investment ISA – and some guidance on the upcoming changes.
What is a Cash ISA?
This has some similarities with a normal savings account but the key difference is that any income or interest within the ISA is free from savings tax. This means cash ISAs are ideal for building a short-term savings pot or an emergency fund, as they are not exposed to market fluctuations.
Currently, you can deposit up to £20,000 a year into a cash ISA tax-free. However, the tax-free amount will be reduced to £12,000 in 2027, which we’ll explain in more detail later.
What is an investment ISA?
An investment ISA, often referred to as a stocks and shares ISA, works in a similar way to the cash ISA. However, instead of holding your money in cash, you put it into the investment markets. This is commonly a mixture of bonds, funds, and shares:
- Bonds: Fixed-income assets that are generally less volatile than shares and are issued by governments and corporations to raise money.
- Shares: A small ownership stake in a company, such as Amazon or Nvidia. Typically more volatile than diversified funds.
- Funds: These can be a large basket of shares, a large basket of bonds, or—most commonly—a mixture of the two. They provide diversification by pooling different types of investments together.
Investment ISAs are also tax-free, which means any income or gains generated are not subject to income, dividend or capital gains tax. The limit will remain at £20,000, which is the maximum amount you can deposit into an investment ISA each year.
Autumn Budget 2025: how does it affect ISAs?
The Autumn Budget introduced several important changes that will impact how savers and investors use ISAs in the coming years. While the headline change is the reduced allowance for cash ISAs, there are also new rules around transfers and eligibility that could influence your long-term financial planning. Here’s a summary of what’s changing:
- Changes to cash ISAs
In the Autumn Budget, the Chancellor announced that the amount of money you can deposit into a Cash ISA will fall to £12,000 a year if you are under 65.
Please note: this change hasn't been implemented immediately. It isn’t scheduled to take effect until the 2027-2028 tax year begins in April 2027.
That means you can continue to deposit up to £20,000 into a Cash ISA in the current tax year and up until the end of the 2026-2027 tax year (April 5th, 2027).
However, from April 6th, 2027, under 65s will only be able to save up to £12,000 a year into a Cash ISA.
- Changes to Investment ISAs
From April 6th, 2027, you won't be allowed to transfer savings from an investment ISA (stocks and shares ISA) to a cash ISA. The government says this is intended to prevent people from bypassing the reduced cash ISA limit.
- Other important changes to ISAs:
The government will introduce new tests to determine whether an investment is eligible to be held in an investment ISA or should be held in a cash ISA. There will be a new charge on interest paid on cash held in investment ISAs.
These rules will only apply to people aged 65 and under.
Why has the government introduced these changes?
In her Budget announcement on November 26th 2025, Reeves highlighted the fact that there are "not many young people who can put aside £20,000 a year in savings", and that their biggest challenge is getting a job that pays well, rather than having access to the full £20,000 cash ISA limit.
“Someone who’s invested £1,000 a year in an average stocks and shares ISA every year since 1999 would be £50,000 better off today than if they’d put the same money into a cash ISA,” Reeves added.
What this means for you
Cash ISAs can still be valuable for building your short-term savings, even when the limit is reduced to £12,000 a year. However, investing generally delivers better returns than cash over a longer time period, provided your money is invested in a suitably diversified portfolio.
Remember, the value of investments and the income from them can fall as well as rise and are not guaranteed and you might not get back your initial investment.
At Schroders Personal Wealth, we can help you understand more about how the Budget may affect you and what you can do to prepare. Get in touch to book a free, no obligation call with one of our team today.
There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan
Important information
This article is for information purposes only. It is not intended as financial advice.
Fees and charges apply.
There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.
Tax treatment depends on your individual circumstances and may be subject to change in the future.
Cash savings and investments are protected to the value of £120,000 and £85,000 respectively, per person per institution by the Financial Services Compensation Scheme (FSCS). However, the value of investments may fall as well as rise.
