Yes, there's a difference. If you think of an ISA as a bucket with tax rules attached to it, the difference between a cash ISA and a stocks and shares ISA is what you can put in the bucket. The other difference is in the limits. The overall ISA limit is £10,200, rising to £10,600 next year. Of this, the most you can have in a cash ISA is £5,100. If you do this, you still have another £5,100 you can put in a S&S ISA. If, however, you put the full £10,200 into a S&S ISA, you cannot have a cash ISA in that tax year.
Remember that the limits are how much you put in each tax year, not on how much you have in, so every April 6th, you get a new allowance. Cash ISAs can be held from age 16 up, and S&S ISAs from aged 18 up. There is talk of a new Junior ISA designed for children which will replace, to some extent, the now defunct Child Trust Fund. Not many details are out in the open about these yet.
As long as you don't withdraw the money from your ISA, it will remain tax efficient. Only Cash ISAs are completely tax free, because the interest is paid gross, that is, before income tax. Income from an S&S ISA is often in the form of dividends, not interest. These have a notional 10% deducted before you get the dividend, and that 10% cannot be reclaimed. S&S ISAs are free of Capital Gains Tax though.
You can transfer an ISA from one provider to another and keep your tax free status. You can also transfer a cash ISA into a S&S ISA, but not the other way round.
Hope that helps
Pete Matthew - meaningfulmoney.tv | 11.29.10 @ 21:54