Revealed! A great reason to opt for a Stocks and Shares ISA over a Cash ISA

Revealed!  A great reason to opt for a Stocks and Shares ISA over a Cash ISA

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According to a leading trading platform, there is a great reason to opt for a stock ISA over a cash ISA.

So, with the end of the fiscal year just days away, let’s take a closer look at when a stock ISA might be more attractive than a cash ISA.

Why is the fiscal year important when it comes to ISA?

The last day of fiscal year 2021/2022 is April 5. It’s significant because it’s also the last day you can use your £20,000 ISA Assignment in the current fiscal year. When the new tax year begins on April 6, the £20,000 cap will be reset for tax year 2022/2023.

It is important to note that if you have not opened or added to a ISA stocks and shares – or any other ISA type – before Wednesday of next week, you won’t get another chance to use your £20,000 allowance for 2021/22. This is because any portion of an ISA allocation that you do not use within a given tax year cannot be carried over to future tax years.

To put it bluntly, when it comes to ISA allocation, you have to use it or lose it!

What is the only reason to opt for a Stocks and Shares ISA instead of a Cash ISA?

Your ISA allowance covers you for all ISA types. Therefore, you have the option of spreading your allocation across different types of ISAs. For example, you can save £10,000 in a cash ISA and then £10,000 in a stock ISA within the same tax year, if you wish.

However, according to SaxoMarkets, there is a great reason why those hoping to exhaust their 2021/22 ISA allocation may want to stick with just a stock and shares ISA. This is because the trading platform highlights how stocks and equity ISAs are almost certainly a better option for those with a long-term horizon.

According to SaxoMarkets, whether you should choose a stock ISA over a cash ISA depends on how long you intend to save. For those with a long-term view, typically five years or more, the trading platform argues that it is “wise” to opt for a stock ISA. This is because, although a Cash ISA is technically risk-free, in real terms the value of your money will almost certainly be eroded by inflation.

It’s not hard to see why this is likely to be the case. Right now, the highest interest rate on an Easy Access Cash ISA is just 0.85%. This is well below the most recent UK one. rate of inflation 6.2%.

SaxoMarkets also points to the fact that stocks and shares have historically returned higher returns than cash. According to his research, between 1926 and 2017, the S&P 500 The index averaged a 10.22% annual return. This was almost four times higher than the average inflation rate (2.89%) during the same period.

Is there still time to invest in ISA stocks and shares?

The current fiscal year ends on Tuesday, April 5. So, you have time to open an ISA and still benefit from the 2021/22 ISA allowance.

If you want to open an account before the deadline, check out The Motley Fool’s Top Rated Stocks and Stock ISAs.

As with any investment, remember that past performance is not a reliable indicator of future returns. Also, keep in mind that when you invest, your capital is at risk. For more necessary information, take a look at our basic investment guide.

Don’t leave it for the last minute: fix your ISA now!

stocks and shares isa icon

If you are looking to invest in stocks, ETFs or funds, then Opening a Stock and Share ISA could be a great choice. Protect up to £20,000 this tax year from the Taxman, there is no UK income or capital gains tax to pay for potential gains.

Our Motley Fool experts have reviewed and classified some of the best ISA Stocks and Shares available, to help you choose.

Investments involve various risks and you may get back less than you invested. Tax benefits depend on individual circumstances and tax rules, which may change.

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