The Individual Savings Account turned 26 this year, and for the first time in over a decade, it is genuinely exciting. Interest rates at 4–5% mean that the cash ISA — long dismissed as poor value compared to equity investments — is paying meaningful returns on money that is also protected from both income tax and capital gains tax.
Cash ISA vs Stocks and Shares ISA
The choice between holding cash or equities within an ISA wrapping depends primarily on your investment horizon and risk tolerance.
For money you will need within five years, cash provides certainty. At 4.5%, a fully funded ISA generates £900 of tax-free interest annually — a meaningful benefit for higher and additional rate taxpayers who would otherwise pay 40–45% on savings interest.
For money you can leave untouched for ten years or more, the evidence strongly favours equities. The FTSE All World index has returned an average of approximately 8% annually over twenty years, and that return is particularly valuable tax-free.
The Best Rates Right Now
Easy access cash ISAs are currently available at 4.6–4.8% from challenger banks. Notice accounts at 90 or 180 days offer 5.0–5.2%. Fixed-rate ISAs locking money away for one or two years are available at 4.4–4.7%.
The Lifetime ISA
The Lifetime ISA remains one of the most underused financial products in Britain. The government adds a 25% bonus on up to £4,000 of contributions per year — a guaranteed return of 25% before any interest. The catch: the money must be used for a first home purchase (on a property up to £450,000) or held until age 60.
