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Nov 06

Why Equities ISAs Beat Cash Savings Every Time

Reading Time: 6 mins

Equities ISAs offer an easy way to invest and grow your money over time.

We’re going to keep saying it until you go it: move your cash savings into stocks and shares ISAs!

Don’t be put off by the risk of investing in funds. The long-term returns you get are far more likely to outrank the paltry interest rate you’re getting on your savings (which are even lower when you take inflation into account).

We all get scared of losing our hard-earned money. But you can make your money work hard for you, so that it grows and leaves you with a lovely savings pot for the future!

Rich people don’t get scared the way most of us do – and that’s where the financial difference lies. They’re willing to take a bit of a risk for higher rewards.

So, do you want to be rich? Think rich!

Here’s why equities ISAs are where you should put your savings – and how to transfer money into them.


Why we MUST not be scared of the stock market

On a daily basis the stock market goes up and down faster than the tempers of the latest Love Island contestants.

But that’s not of interest to us if we invest for the long-term.

For you and me, that’s the best way to invest.

In the long-term these stomach-churning ups and downs smooth out and, on the whole, the general trend is upwards.

We only hear about the stock market when it’s dire: it’s crashing, it’s going to crash, it’s rock-bottom.

What’s not reported in the (non-financial) media is when the stock market is doing well. Which is, frankly, most of the time – even in today’s turbulent economic and political climate, there are always going to be some winners on the stock market.

A crash isn’t totally bad, either – if you have the right mindset. That’s because a crash means stock prices have plummeted – so you can get more shares for your money. And then when people buy those cheap shares… demand increases… so the price climbs… and you make more money!

So if you’re putting money away for the long-term…

……and that’s the way you should view your ISA investments…as a long-term investment to form part of your retirement fund…


…then you need to put it into stocks and shares, not into savings accounts.

Savings accounts (including Cash ISAs) are for the short-term and they’re very useful for short-term saving and to be used as an essential buffer for day-to-day living.

However, they are USELESS for long-term investing because they don’t keep up with inflation – the returns, on average, are too low. For the long-term you need to invest in equities (stocks and shares).

Our founder, Jasmine, has never invested in a cash ISA because it’s a waste of a tax-saving vehicle. Any money you put into a cash ISA you can’t put into an equities ISA. She made a video on this very subject a few years ago, and still stands by it!

Stocks and shares – particularly easy-to-invest index trackers – beat cash ISAs hands-down for long-term returns and inflation-beating savings.

Investing in funds via an equities ISA also gives you additional tax savings on dividends, compared to if you invest and keep them outside of your ISA product. You’ll not have to pay tax on your dividend payments up to £2,000 each year. After that allowance, you’ll pay depending on your tax band (7.5% for basic rate, 32.5% higher rate, and 38.1% additional rate).

You also don’t pay any tax at all on income generated via interest on corporate bonds invested via your ISA (although this does fall under the Personal Savings Allowance of £1,000 for basic rate and £500 for higher rate taxpayers).



How do I invest in equities ISAs?

Firstly, remember that you can have both a cash ISA and an equities ISA. So, you can keep your cash ISA for your ready-access emergency fund (which everyone needs) and invest in stocks and shares with your equities ISA.

However, we would recommend not paying anything further into your cash ISA once you’ve got a reasonable ‘emergency buffer’ saved. This is because your tax-free allowance of £20,000 paid in each year has to be split between the two accounts. For example, if you paid in £5,000 into your cash ISA, you can only put £15,000 into your equities ISA in the same tax year.

To make the most of the tax-free benefits of an equities ISA, we suggest using it as your primary savings and investments account (instead of your cash ISA). It’s a long-term investment, if you want to see great results, so that’s why you should always have a small emergency easy-access savings fund, too.

When you open your equities ISA, you’ll realise there are a few options.

Do-it-for-me ISAs:

You can choose a ‘ready-wrapped’ ISA with pre-selected funds. This is ideal for those who are new to investing and don’t mind paying slightly higher fees for someone else to manage their investments. Popular providers include Nutmeg and Evestor.

Do-it-yourself ISAs:

Buy your shares and stocks directly using an online platform (we’ll explain how in a minute) and put them into your ISA. This is also known as a Self-Select ISA – read our detailed guide about them here.

Much like a Self-Select ISA, if you want to use your investment for your retirement you can choose Self-Invested Personal Pension (SIPP) instead. This one is a really long-term investment (the clue’s in the ‘pension’ bit) and you won’t be able to withdraw cash before the age of 55 (or, if you transfer funds to another pension, may face a hefty charge).

Check out providers like iWeb and Cavendish Online to find out more about Self-Select ISAs.

Do-it-with-me ISAs:

This is a blend between a total DIY option and a ready-wrapped option. You have more control over the funds you invest in, but benefit from insights and assistance from the platform to help you make decisions. Market leaders like AJ Bell and Vanguard are great places to find out more information about this type of investing.

If you want to try your hand at investing on your own – without using pre-selected ‘ready wrapped’ ISAs – check out our article on how to buy stocks and shares to get started.

However, if you’re new to investing, a ready-made portfolio is probably the best way to get started. As you learn to watch the performance of your stocks in the pre-selected funds, you’ll gain confidence in your understanding of the stock market. At that stage, consider branching out and investing on your own!

How to move your cash into an equities ISA

If you think you need to take your money out of your cash ISA first – STOP! Taking the money out, then putting it into a new equities ISA, would slash your £20,000 annual limit.

For example, if you’ve paid £5,000 in your cash ISA this tax year and withdrew it, then paid the same £5,000 into an equities ISA, you’ll have used £10,000 of your annual allowance.
Thankfully, it’s simple to transfer from a cash ISA to an equities ISA.

Find the provider you want to open a new equities ISA with. You’ll then need to fill out a form to make a transfer of the cash in your existing ISA into your new one.

If you have other ISAs from previous years, you can also transfer the full balance or choose how much you want to withdraw. It’s only the ISA you’ve paid into in this tax year that you’ll have to transfer the full amount from.

Doing this transfer means your annual allowance won’t be affected – so you can transfer £100,000 if you like and still be able to pay in £20,000 new savings on top of that.


You can open a new stocks and shares ISA each year, but can only pay into one of them. For example, if you own an equities ISA with Halifax in 2019/2020 tax year, and open another with Barclays in the 2020/2021 tax year, you’d have to decide which one you wanted to pay money into in the 2020/21 tax year: you couldn’t pay into both.

You may be better off transferring your previous equities ISA to your new one. This avoids a lot of confusion! You can decide whether you want to sell existing holdings and transfer the cash, or if you want to transfer your stocks and shares. Simply open a new equities ISA account and complete the relevant form for the transfer.

Remember: you can hold a cash, equities, lifetime, and an Innovative Finance ISA (IFISA) – but your £20,000 annual pay-in allowance remains the same, regardless of how many ISA products you have.

Want to know more about what I think about shares? Follow me on Twitter for all sorts of facts and opinions!

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4 months ago

Very good points covered here.

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