£20,000 in a 4.51% Cash ISA Becomes £31,048 in a Decade — The Same Money in Global Equities Becomes £47,347

The top-of-the-table Cash ISA rate in April 2026 is 4.51% from Trading 212, and it is engineered for the best-buy tables. Strip out the 0.91% one-year bonus for new customers and the underlying rate is 3.6%. Plum sits at 4.31% headline, 2.54% base. Tembo's 4.3% falls to 2.8%. The MoneySavingExpert best-buy table spells this out in the small print that most savers skim past.

After twelve months the bonus evaporates and you are on the underlying rate — usually within 30-80bps of the Bank of England base rate, which is currently 3.75%. The MPC's next decision lands on 30 April. Consensus expects the Bank to hold, but the forward curve prices two cuts by year-end. When Bank Rate falls, underlying ISA rates fall with it — and the 4.51% you locked onto today becomes 3.2-3.4% before the 2027 tax year arrives.

The compounding rate for any long-horizon plan is the underlying rate, not the teaser. Build your ten-year projection around 3.6% not 4.51% and the maths against equities gets a lot worse.

Run the compounding on a full 2026/27 ISA allowance and the outcome spread is uncomfortable.

• Cash ISA at 4.51% flat (optimistic — assumes you keep finding best-buy rates every year): £20,000 × (1.0451)^10 = £31,048
• Cash ISA at 3.75% average (realistic — Bank Rate tracking over a cutting cycle): £20,000 × (1.0375)^10 = £28,893
• Global equity tracker at 7% nominal (conservative — 1% below Barclays Equity Gilt Study long-run UK equity total return): £20,000 × (1.07)^10 = £39,343
• Global equity tracker at 9% nominal (MSCI World rolling 20-year average): £20,000 × (1.09)^10 = £47,347

The gap between the realistic Cash ISA outcome and the conservative equity outcome is £10,450 — over half your initial capital, foregone. Stretch to 20 years and £20,000 in equities at 7% becomes £77,394 while the Cash ISA produces £41,815. That is the same tax wrapper, the same £20,000, the same zero HMRC bill — and a difference of £35,579.

The Cash ISA is not wrong. It is just slow. And for anything beyond a 5-year emergency fund it compounds too slowly to justify holding.

ONS CPI stood at 3.3% in March 2026, the latest available print. That is the number that decides whether your Cash ISA is actually making you richer.

Trading 212's headline 4.51% minus 3.3% CPI is a 1.21% real return. Drop to the 3.6% underlying rate after year one and the real return shrinks to 0.30% — the ISA is essentially parking money at break-even. Santander's 4.5% fixed gives you a 1.20% real return for five years, but only if inflation averages 3.3% over that window. The ONS's forecast track has CPI easing to 2-2.5% by 2027 — which helps — but the Bank of England's February Monetary Policy Report flagged persistent services inflation at 4.2%, which is what the MPC actually responds to.

Equities compound above inflation by a much wider margin. Over 120 years of UK data the real return on equities is about 5.1% per year; on Treasury bills it is 0.7%. The same money in the same wrapper produces a fundamentally different end result because productive capital grows faster than deposits — no matter what the headline savings rate says on a given Tuesday.

Every defender of Cash ISAs reaches for the same line: equities can fall 30% in a quarter. True. The FTSE All-Share lost 31% between January 2020 and March 2020. The MSCI World fell 25% in 2022. Anyone who needed their money during those windows took a real loss.

But rolling periods tell the actual story. Over any 20-year window in UK market history, equities have beaten cash in real terms. Over 10 years they beat cash in roughly 95% of windows. Over 5 years the success rate drops to 75%. Over 3 years it falls to 60%.

The rule is simple: Cash ISA for money you need inside five years. Stocks & Shares ISA for money you need beyond five years. Mixing the two buckets — holding emergency cash in equities, or keeping a 20-year retirement pot in a Cash ISA — is where savers destroy their own wealth.

For a picture of how investors build a low-cost global tracker portfolio inside an S&S ISA, see our guide to ETFs for UK beginners — a diversified world fund costs under 0.25% a year.

Both a Cash ISA and a Stocks & Shares ISA use the same £20,000 2026/27 ISA allowance and deliver the same outcome at HMRC: zero Income Tax on interest, zero Dividend Tax on distributions, zero Capital Gains Tax on growth. The wrapper is tax-identical.

What differs is what the wrapper is wrapping. A Cash ISA wraps deposits that pay 3.6-4.5%. A Stocks & Shares ISA wraps productive assets that have historically paid 7-9% in nominal terms. The ISA is not the return generator — what you put inside it is.

Higher-rate taxpayers face an even sharper version of this maths. Outside an ISA, the Personal Savings Allowance is £500 for higher-rate earners and zero for additional-rate earners — so the first £11,111 of savings at 4.5% breaches the PSA for a higher-rate taxpayer, after which interest is taxed at 40%. Dividends outside an ISA get a £500 allowance then 33.75% tax at the higher rate. The ISA wrapper protects both; the compounding advantage belongs only to equities.

See our full ISA hub for how the wrapper rules interact with the LISA, JISA, and innovative finance variants.

The 2026/27 tax year opened on 6 April with another £20,000 of headroom. The allocation framework for a saver with a 10+ year horizon and no immediate spending need:

• Keep 3-6 months of expenses in cash — but this does not need to live in a Cash ISA if you are a basic-rate taxpayer. The £1,000 PSA covers £22,222 at 4.5% before any tax bill lands. A regular savings account works fine; use the ISA allowance for something that earns more.
• Direct the £20,000 allowance at a global equity tracker — Vanguard FTSE Global All Cap, HSBC FTSE All-World Index, or Invesco FTSE All-World UCITS ETF. Annual fees 0.15-0.23%. Buy on a platform with capped charges for ISA investors (see our comparison of AJ Bell vs Vanguard).
• Lump-sum or drip-feed: the Vanguard research and our own analysis suggests lump sum wins two-thirds of the time, though drip-feeding reduces regret risk.
• Ignore stock-picking temptations — a diversified index tracker captures the 7-9% historical return; single-stock bets add risk without raising the expected return.

The Cash ISA defenders have one legitimate job: protecting money that has to be spent in the short term. For every other pound, the Stocks & Shares ISA is where compounding actually happens.

For the opposing view — why cash certainty matters for savers whose horizon is shorter than five years — read the Guide's case for keeping your ISA in cash.

This article is for informational purposes only and does not constitute financial advice. Investment values can fall as well as rise and you may not get back what you invested. Past performance is not a reliable indicator of future results. You should seek independent financial advice before making any investment decisions.