Investing in cash in a Stocks and Shares ISA: the basics

If you think of a Stocks and Shares ISA, you might imagine that you have to invest in company shares or funds. But did you know you can also keep cash in a Stocks and Shares ISA?

Holding cash inside a Stocks and Shares ISA usually means investing in something called ‘cash funds’ (also known as money market funds). But what does that mean? and why would you do it?

• Add cash to your Stocks and Shares ISA
• Open a Stocks and Shares ISA
• See our current offers to help make your money go further

So, what exactly are cash funds?

Think of cash funds like having a piggy bank that’s managed by professionals. Instead of your cash sitting idle, these cash funds invest your money into very safe, short-term financial products. These products can be things like treasury bills (short-term loans to governments), certificates of deposit (short-term savings at banks), or short-term bonds from reliable governments and companies.

Imagine, you’ve saved £100,000 to do an extension on your house. Your plans are waiting approval, and your builder can’t start on your project for at least nine months. You want to keep your money safe as you need every penny and easily accessible, but you’d like to earn a little interest, too. A cash fund within a Stocks and Shares ISA could offer safety, flexibility and modest returns.

Why would you invest in a cash fund in a Stocks and Shares ISA?

Money market funds have been popular with our customers this year, with cash funds consistently appearing in the top 10 best-selling ISA and SIPP funds over the first three months of 2025.

• See our top 10 best-selling ISA and SIPP funds in March

Here are a few reasons why investors buy cash funds.

1. Keeps your money relatively safe
   
   Unlike investing in shares (where the value can rise and fall quite dramatically) cash funds are much steadier. They're good for protecting your savings when the market gets bumpy.
2. Provides easy access to your money
   
   If you urgently need your money, it typically takes up to seven working days to access it, depending on the fund you've invested in. Many of the high street’s competitive savings accounts require you to lock your money away for a fixed time.
3. Helps balance your investments
   
   Let's say your portfolio holds a range of riskier assets - such as shares or funds that contain property or equities in them. Holding some cash funds can help balance things out, reducing your risk if the stock market has a rough patch. It's good practice not to put all your eggs in one basket, otherwise known as diversification.
4. Gives tax-free gains
   
   Any interest or returns your cash earns within a Stocks and Shares ISA won't be taxed. So, if you're thinking of keeping some money safe temporarily while you plan your next move, this is a neat way to do it without worrying tax.
5. Offers reliable (but modest) returns
   
   Cash funds are at the lower end of the risk / reward spectrum. It means they don’t have the same potential for growth as investments at the higher end of the spectrum (such as shares), they do offer slow and steady growth, giving you peace of mind.

Other points to consider when thinking about investing in cash funds

Cash funds have some great benefits, but it’s also worth keeping the following in mind.

Lower growth than other investments

In the long run, cash funds might struggle to beat inflation - by much, if at all. Inflation is when things slowly get more expensive over time, reducing what your money can buy. This means if you leave your cash in these funds for many years, it might not grow enough to keep up with rising prices.

Check the fees

Some cash funds charge management fees. Make sure to look for a fund with low fees, because higher fees can eat into your profits.

Interest rates matter

When interest rates go up, cash funds typically offer better returns. But if interest rates drop, your returns will probably shrink, too. 

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Simple steps to investing in cash funds in a Stocks and Shares ISA

1. Open a Stocks and Shares ISA - If you don't already have one, you'll need to open a Stocks and Shares ISA. Learn more about opening a Stocks and Shares ISA.
2. Add money to your ISA - the next step is to pop some money into your account. You can either invest a lump sum or set up a regular savings plan. Login in to add money.
3. Choose a cash fund - here's a list of the cash and money market funds that we hold on our platform (as at April 2024). The accumulation funds are listed below, but note we also have Income versions for many of these funds. Make sure you do your research before picking one that’s right for you. View our Investment Finder for the latest funds.
   1. abrdn Sterling Money Market Fund
   2. Royal London Short Term Money Market Fund
   3. BlackRock Cash Fund
   4. Fidelity Cash Fund
   5. Invesco Money Fund UK
   6. Legal & General Cash Trust
   7. Royal London Short Term Fixed Income
   8. Royal London Short Term Fixed Income Enhanced
   9. WS Canlife Sterling Liquidity Fund
4. Invest
   
   Once you've chosen a cash fund, you need to buy it. Log in to your account, click on invest now, then ‘buy’ and then ‘add investments’. You can then search for your chosen cash fud. Log in to your account to buy a cash fund.
5. Monitor and manage your investments
   
   As time passes - and especially as interest rates change - it’s worth keeping an eye on your investments and adjust as needed. The beauty of holding cash inside a Stocks and Shares ISA is that you can switch to other investments that might offer more room for potential growth within your ISA if and when it suits you. 

• Can’t decide where to invest? Secure your allowances in cash, choose your investments later
• See our current offers to help make your money go further

Are Cash ISAs going to change in the future?

As a final thought, Cash ISAs have been in the news recently. There are ongoing discussions about potentially phasing out or restricting Cash ISAs. Proposed changes include merging Cash ISAs with Stocks and Shares ISAs, capping the Cash ISA element to £4,000, and limiting ISAs only to investments - with a view to encouraging more investment into the UK stock market and reduce government subsidies.

• Read: How might the government change Cash ISAs?
• Read: 10-minute tax-saving toolkit
• Read: Last-minute ISA? These are the world’s cheapest stock markets

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Tax treatment depends on individual circumstances and all tax rules may change in the future. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one ofFidelity’s advisers or an authorised financial adviser of your choice.