Cash ISA or investment ISA

[user380968]

I want to open an ISA with my bank but not sure which one will be better. I must admit I am a bit ignorant on the topic and only thinking of this recently.

How much risk are you happy to take with the money?

If you want to be sure the money won't decrease in value, cash is the only option.

If you want a greater potential return but increased probability it may lose money, go for investment.

Thank you. I guess middle risk but don't want to loose my money either

Well, the effects of inflation over a long time period will eat away at your money- £3k now is not going to buy much in 30 years time.

How long are you likely to hold the money in there?

If you are likely to need to dip into it: cash
If you are intending to leave for minimum three years: investment (equities)

It is not that you are unable to access the funds but your risk of loss is much lower on investment over a longer time horizon. If you are planning to leave it for a period of time then a medium risk investment ISA will see better returns in all probability.

Cash ISAs only lose money and it's impossible to break even. Inflation stands at 3.1% and interest will most likely be 1-1.5% but definitely less than inflation.

Investments perform much better and actually earn you money over time. They will have varying risk profiles - low risk might only make you 4-5% a year but it's unlikely to lose more then a few % in a bad year. High risk could make of lose 20% etc. The thing to bear in mind with investing is that you need to be in it for the medium or long term so you're not affected by those fluctuations.

If you're likely to want to withdraw your money from the isa in few months or a year, you might as well stick to the cash option.

Thank you. I am going for the investment ISA; there are 3 options with my bank so will take the middle one.

There are no guarantees with investment and no it 'will' make money. As noted all cash savings lose real value. The only reason for cash ISA's is to shelter money for the future.