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Equity Isas have the potential for higher returns over the long term and there is the opportunity for growth both in capital and income. However, they’re more risky than cash Isas because the value of stocks and shares can go down as well as up, as demonstrated by recent falls in the stock market.
Cash Isas are more secure if you cannot afford to lose your initial capital and would be worried by stock market volatility. They also offer access to your money at short notice.
Whether a cash or equity Isa is best for you ultimately depends on whether you’re investing for the short or long term, and your attitude to risk.
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Cash Isa rates
Like other types of savings accounts, the interest rates paid on cash Isas have been affected by the Bank of England base rate being at an all-time low.
However, experts say it’s still a good idea to make the most of your cash Isa allowance. Calculations by moneysupermarket.com show that basic rate taxpayers who have used their full cash Isa allowance in each of the past 10 years will be £2,700 better off than people who have saved the same amount of money outside an Isa. A higher-rate taxpayer would be more than £4,800 better off.
Kevin Mountford, head of banking at moneysupermarket.com says: "Inflation is on the way down and cash Isas are paying around 3.25%, so they are still a very good proposition for savers.
"With Isa rates halving from their high of 6.5% last year, it's more important than ever to ensure your savings are working hard for you. Saving within an Isa is a no-brainer as the figures suggest – an extra £2,700 over 10 years is nothing to be sniffed at."
