Rumours are swirling that ISA reforms are on the way. According to ‘those in the know’, annual allowances for the Cash ISA are about to receive a substantial haircut.
Experts at interactive investor have said that “the chancellor [is] believed to be eyeing up a reduction to either £10,000 or £12,000, akin to the pre-2014 ISA landscape when the cash limit was never more than half the overall allowance.“
That would mark a significant reduction from the current limit of £20,000.
But I’m not panicking. In fact, any changes to the ISA allowance won’t change my wealth-building strategy in the slightest. Want to know why?
Protecting my future
Put simply, cash products don’t play a big role in my strategy to build long-term wealth.
Sure, I use a Cash ISA to hold emergency cash and to diversify my holdings. However, the terrible returns they provide mean the bulk of my capital is invested in shares, trusts and funds, which provide far higher returns.
So even if the Cash ISA allowance is slashed to £10k or £12k, it won’t make any difference to my investing strategy. Putting too much money in a low-yielding Cash ISA could have catastrophic consequences on my retirement plans.
Let me show you why.
Different ISA returns
Over the last decade, the typical Cash ISA saver has ‘enjoyed’ an average annual return of 1.2%. That’s substantially below the average of 9.6% that Stocks and Shares ISA investors have tended to receive. This is according to research from Moneyfacts.
Based on those figures, someone who saved £500 a month in a Cash ISA would have £135,548 after 20 years.
For someone who split £100 between a Cash ISA and £400 in an investing ISA? The total return is more than double that, at £315,562.
Balancing risk and reward
The possibility of higher returns comes with greater risk, naturally. However, with the right investments it’s possible to create a rock-solid Stocks and Shares ISA.
I myself have reduced the risk to my cash by diversifying my portfolio. This includes investing in a wide range of individual stocks in both cyclical and defensive sectors (think utilities, healthcare providers and food manufacturers).
I also hold money in investment trusts and exchange-traded funds (ETFs). These products can spread investors across hundreds of shares, based on particular themes or indexes.
I think Alliance Witan (LSE:ALW) is a great trust for risk-averse individuals to consider. Since late 2020, it’s delivered an average yearly return of 12.2%, helped by its long record of rising dividends. Dividends here have risen consistently for 58 years.
The trust’s performance is sensitive to broader stock market conditions. As seen in early 2025, its share price fell heavily as global equity values fell.
But the trust’s capital allocation means it’s still provided market-beating returns over the longer term. Today it holds shares in 227 different companies: these are as varied as US chipbuilder Nvidia, French defence stock Safran, British drinks manufacturer Diageo and Korea’s Samsung Electronics.
Considering diversified trusts like this can help Britons earn great returns without having to accept excessive risk. In my opinion, they’re a far better way to target long-term wealth than simply bunging cash in an ISA.
