What are the best alternatives to a Cash ISA? Bonds, gilts and low-risk funds explained
Written by Boring Money
10 Dec, 2025
Cash ISAs are shrinking, and the government is closing the “cash-like” loophole in Stocks & Shares ISAs. But your choice isn’t just cash or a tech fund. Here are four alternative options, from gilts to defensive multi-asset funds,that could beat cash without big stock market swings.
From April 2027, under-65s can only put £12,000 a year into a Cash ISA, and the government is clamping down on cash-like holdings in Stocks & Shares ISAs. However, this can’t simply be parked in money market funds either, because the new rules stop them from making up the whole account. So what’s left for cautious savers?
If money market funds are taken off the table for ISA investors, the reality is that you’re going to have to take some risk with your ISA allowance. There’s nothing that can replicate the liquidity in the security of cash based investments, but there are lower risk options.
Encouraging people out of their Cash ISA holdings may not necessarily be a bad thing. Approximately half of all ISA holdings are held in cash, much of it at low The amount that a lender charges someone for taking out a loan or a mortgage. It's calculated as a percentage of the amount borrowed - for example, 3%., which leaves savers condemned to slow growth and poorly defended against Term used to describe how quickly the prices of goods and services is rising over a period of time. In periods of high inflation, prices are increasing rapidly, whereas low inflation means prices are increasing by only a small amount..
In order to persuade the public that they should be expanding their investment horizons, they need to be persuaded that there are investments which can defend their money. The average investor does not appreciate the damage that inflation can do to their capital savings.
He says that many investors neglect bond markets when looking for ISA options, and they are a natural choice for savers moving out of cash.
What are the best low-risk alternatives to a Cash ISA?
If you want to beat cash without riding the stock market, there are four main options: gilts, corporate bonds, strategic bond funds and defensive multi-asset funds. All can sit in a Stocks & Shares ISA. None is as risk-free as cash, but over five years or more they've typically outpaced it.
Are gilts a safe alternative to a Cash ISA?
The first potential option for a cautious investor may be a UK government bond or A gilt is a fixed income bond issued by the UK government. They are so named because, historically, the paper certificates used to issue these bonds had a gilt (gilded) edge. The government issues gilts in order to fund public spending.. This is debt issued by the UK government, paying a specified interest rate, with the principle repaid after a set period of time. The only risk is that the UK government defaults, which has never happened. Interest rates are generally higher than cash savings. Investors will find a range of options on most major investment platforms.
Are corporate bonds riskier than cash?
From there, investors may look to corporate bonds – bonds issued by companies.
As Hart points out:
The fixed income sector is larger than the equity sector; corporate bonds are less volatile than stock markets and are contractually safer than equities. A corporate bond tends to be safer and less volatile than equity, as the bond holder has a contractual right to interest and principle payments before equity holders in any bankruptcy.
There is a wide range of credit funds investing in short-dated bonds with maturities greater than 90 days (less than 90 days is termed cash-like). All with the capability of giving investors what they want, consistent ‘interest’ returns, with the ability to outperform inflation.
Haynes likes the Aberdeen Short Dated Enhanced Income.
It looks to provide liquid lower risk bond exposure while generating an attractive income higher than cash. The fund focuses on a portfolio of low duration global bonds and aims to have very low volatility and drawdowns. Another option is Artemis Short-Duration Strategic Bond, a flexible bond fund with focus on good quality, lower duration investment grade bonds, and limiting downside; a key objective.
Hart’s AI Tactical High Yield Bond fund invests in a portfolio of high yield bond funds, but uses some An investment strategy which aims to protect against risk or financial loss from adverse price movements. For example, by using a derivative contract to agree to sell if the share price of an investment falls below a certain level - therefore limiting potential losses. to manage the Describes the price movement of an investment or index. High volatility indicates frequent and significant price movement, whereas low volatility denotes less frequent or severe fluctuations in price.. This has helped smooth the return to investors over time, and it is another option for cautious investors moving out of cash.
What is a strategic bond fund?
Strategic bond funds will be another popular option. These tend to combine different types of bonds in a single portfolio. David Roberts, co-portfolio manager of the Nedgroup Investments Global Strategic Bond Fund, says it’s important for investors to know what they’re buying because fund managers will use the flexibility afforded to them in different ways, creating different risk and return profiles.
The Nedgroup fund is designed to be cautious.
Our view is a bond fund is bought as the foundation for a broader mandate. Often the “ballast” in a portfolio, throwing off income, but not expected to make high levels of capital gain.
His fund will blend government securities, investment grade and high-yield bonds, depending on where the best value is to be found.
As 2025 draws to a close, we have a “defensive” bias in our fund. We normally expect to have between 20 and 30% in high yield and associated assets. Today, that is close to 15% and we have a bias toward much better rated bonds. We are just over our average weighting to investment grade. Again, though, we are defensive with better quality, shorter maturity bonds - designed to protect should economies turn down. Both high yield and investment grade look expensive to their own histories but still offer solid income.
Can multi-asset funds protect my money in a falling market?
If investors are prepared to take on a bit more risk, a defensively managed multi-asset fund such as Troy Trojan or Newton Real Return could be considered, says Haynes. Their focus is on capital growth rather than generating an income. They cannot be entirely immune from the ebb and flow of stock markets, but they have managed to minimise losses in difficult periods. The Troy Trojan fund, for example, dropped just 3.7% in 2022[1], when the wider MSCI World index fell 17.7%.[2] For investors who prefer Investment Trusts, Troy also manages the Personal Assets Investment Trust, which has a similar profile.[3]
There are a range of well-established multi-asset trusts from long-standing teams. The BNY Mellon multi-asset range, for example, has a range of options for different risk profiles and is low cost. The BNY Mellon multi-asset growth fund, the most high octane fund in the range, is first quartile in its sector over one and five years, fell just 3% in the tough markets of 2022, and has an ongoing charge of 0.7%
Any of these funds would have delivered you a far better return than cash over the past five years, but without the volatility of stock markets. While the cuts to Cash ISAs may feel a little mean today, they may turn out for the best in the longer term.
-----
[1] Trustnet
[2] MSCI World Index
[3] Trustnet
