With interest rates so low, is it better to keep money in a savings account or set up an ISA?

10 March 2021

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Question by Hannah

With interest rates so low, is it better to keep money in a savings account (and pay in regularly) or set up an ISA? Also, if you set up a stocks and shares ISA, how do you choose what's best to invest in?

Answered by Farida Hassanali

Hi Hannah,

Well done for building up some savings. It’s a shame this isn’t rewarded with interest rates having been so low for many years now and possibly remaining low over the coming few years too.

Investing your money instead would certainly give scope for greater returns if you are able to take some risk with (some of) your savings. I’ve tried to break down your question to help you make a decision at each stage.

Savings Account or ISA

Any money held within an ISA is not subject to tax. However, you also have a Personal Savings Allowance summarised in the table below. This means that if the total interest you receive within a tax year is within this allowance, there would be no tax on this either.

Income Tax Band

Personal Savings Allowance

Nil or Basic Rate


Higher Rate


Additional Rate


That said, overall, it’s usually still logical to use your ISA allowance (£20,000 per tax year) since it’s lost otherwise.

Cash or Stocks & Shares ISA

The key to considering whether you should keep your money in cash or if it would be appropriate to invest it instead is dependent on if/when you may need access to the money.

In case anything happens, it’s best to keep at least 3-6 months of expenditure aside in an accessible cash account along with any money that you will need for single expenses that you expect to take place in the next 2-3 years such as buying a new car or home improvements. You’ll often see this referred to as your ‘emergency fund’ and you could use an instant access Cash ISA for this.

If you have any expensive debts then you should consider paying them down, before investing, to avoid losing money to high interest rates.

If you are happy that this is all in order and feel comfortable that you are unlikely to need access to your savings for 5+ years then using a Stocks and Shares ISA would be great place to start investing.

Where to invest and what to invest in

With so many different provider and investment options, it can be easy to get confused trying to decide what’s best for you. Fortunately, this is exactly what Boring Money is designed to help with.

I would suggest starting with the ISA comparison (https://www.boringmoney.co.uk/compare/) page and using the filters to narrow down which option would be most suitable for you. For example, on the ‘easy’ side of the scale, a robo adviser would ask some questions to determine your risk profile then use this to pick and manage the investments for you. Remember to check if the chosen provider can accept your monthly contributions too.

If you’d like to have a go at picking some funds yourself, the Funds Investment Guide (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/funds/) has a lot of great information and a list of popular funds picks to help you get started.

Just be aware with investments comes the risk that the value of your money can (and will!) go up and down. The longer the money is left invested, the more likely it is to provide a positive return, which is why we recommend investing for at least 5 years.

I hope this helps you get started and good luck making the most of your savings.


Answered by

Farida Hassanali

Financial Planner

I’ve always wanted to be a financial planner and pleased to say I’m one of those people that really loves their job. I graduated from Loughborough University with a degree in Maths with Economics in 2007 and have been in the financial planning profession ever since and am a volunteer member of the CISI Financial Planning forum.