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:

  1. 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
  2. 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

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