When comparing a Cash ISA vs. a Stocks & Shares ISA, using an interest calculator can help visualize potential returns based on different assumptions. Here’s how you can evaluate them: For more information please visit ISA Interest Calculator
1. Cash ISA
A Cash ISA is a tax-free savings account where your money earns interest at a fixed or variable rate. It’s low risk, but the returns are generally modest.
- Pros:
- No risk of losing money (protected up to £85,000 per provider under FSCS).
- Guaranteed returns with fixed rates.
- Simple and accessible.
- Cons:
- Interest rates are often lower than inflation.
- Limited growth potential compared to investments.
2. Stocks & Shares ISA
A Stocks & Shares ISA allows you to invest in stocks, bonds, and funds with tax-free growth potential. Returns vary depending on market performance.
- Pros:
- Historically higher returns than Cash ISAs over the long term.
- Tax-free capital gains and dividends.
- Can outpace inflation over time.
- Cons:
- Investment risk – value can go down as well as up.
- No guaranteed returns.
- Requires a longer-term mindset (5+ years recommended).
Using an Interest Calculator for Comparison
You can use a compound interest calculator to compare potential growth. Here’s what to consider:
- Cash ISA Calculation:
- Initial deposit: £X
- Annual interest rate: Y%
- Years of saving: Z
- Formula: A = P(1 + r/n)^(nt)
- P = initial deposit
- r = annual interest rate (decimal)
- n = number of times interest is compounded per year
- t = years
- Stocks & Shares ISA Calculation (Estimated Growth):
- Initial deposit: £X
- Estimated annual return: 5-8% (historical average)
- Investment period: Z years
- Formula: A = P(1 + r)^t
- Assumes reinvested earnings
Would you like me to create a calculator for you to test different scenarios?