In recent years, Cash ISAs have been a viable choice for UK investors looking to turn £20,000 in excess savings into a second income. But that looks set to change.
The contribution limit for Cash ISAs is set to fall and an interest rate cut means lower forward returns. Fortunately, though, there might be better opportunities available elsewhere.
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Income opportunities
Last Thursday (18 December) the Bank of England elected to cut interest rates to their lowest levels in three years. As a result, returns on savings are likely to fall in the very near future.
That means people looking to generate meaningful income from their excess cash are likely to have to think about other opportunities. And the stock market is one place to look.
Some companies return part of the profits they generate to shareholders as dividends. And investors can sign up to participate in this by buying shares in those businesses.
Exactly what kind of return investors get depends on how much they pay and how much the company distributes. The return divided by the price is the dividend yield.
Ordinarily, the best time to think about buying dividend stocks is before interest rates fall. Once the stock market is expecting lower rates, prices typically go up and yields come down.
Interestingly, though, there are a few stocks investors can buy that still have quite attractive dividend yields. And these are worth thinking about as cash returns continue to fall.
Healthcare properties
One example is Primary Health Properties (LSE:PHP). The stock has been climbing recently, but there’s still a 7.52% dividend yield on offer and I think it looks interesting.
The company is a real estate investment trust (REIT) that owns a portfolio of GP surgeries. With the NHS as its largest tenant, occupancy rates are high and the risk of unpaid rent is low.
The firm is in an unusual situation. Its share price had been falling as it announced a deal to merge with Assura (its largest competitor) so the yield is still high despite the recent recovery.
In the short term, the move is a risk. It adds more debt to a balance sheet that already had high borrowing levels and that’s why the stock immediately went down on the news.
Over the long term, though, the combined business should be in a very strong competitive position. And I think it has a decent chance of maintaining its dividend going forward.
A high yield can be a warning sign. But while dividends are never guaranteed, I think Primary Health Properties is much less risky than some other stocks with similar dividend yields.
Passive income in 2026
REITs are one of my favourite ideas for investors looking to turn their excess cash into passive income. They provide investors with an alternative to buy-to-let properties without the work.
I think there are a few interesting opportunities in the sector at the moment. But with a 7.25% dividend yield, Primary Health Properties is one that stands out to me.
That’s enough to turn a £20,000 investment into a second income of £1,450 a year. And with interest rates falling, I think that has to be worth taking seriously in 2026.
