Do you have £20,000 sitting in savings? Rather than leaving it in a pitiful cash account, putting that money in UK dividend shares could deliver a better return on your money.
Today, the best-paying Cash ISA offers an interest rate of just 4.4%. And this is a variable product, meaning the return looks nailed on to drop as the Bank of England further trims rates in 2026.
Wouldn’t you prefer to target a better return in the New Year? By buying dividend stocks in a Stocks and Shares ISA, I think it’s possible to make a chunky, four-figure passive income.
Seventh heaven
Dividend yields have tumbled across the London stock market in 2025. As indexes like the FTSE 100 and FTSE 250 have rallied, many stocks now offer less income for the same cash investment.
Yet the UK still remains a great place to go hunting for dividends. Take the following income stocks, whose yields continue to smash the interest rates on mainstream savings accounts:
| Dividend share | 2026 dividend yield |
|---|---|
| Phoenix Group | 7.8% |
| Taylor Wimpey | 8.8% |
| Global X SuperDividend ETF (LSE:SDIP) | 9.5% |
| Aberdeen | 7.2% |
| Rio Tinto | 5.2% |
| US Solar Fund | 7.6% |
| Admiral Group | 6.8% |
| PORTFOLIO AVERAGE | 7.5% |
If broker forecasts are correct, a £20,000 investment across these seven shares will yield a £1,500 passive income in 2026.
It’s important to remember that dividends are never, ever guaranteed. The level of payouts can also underwhelm if unexpected challenges rear their head. However, a diversified portfolio spanning regions and sectors like this spreads out such risks.
A top fund
The Global X SuperDividend ETF that I’ve included provides a powerful way to diversify one’s portfolio. This exchange-traded fund (ETF) holds shares in 100 of the world’s highest-yielding companies, including Legal & General, Western Union, Greencoat Renewables, and Vale.
As well as also offering a near-10% dividend yield, this fund makes monthly distributions to shareholders, which it’s done so for the last 14 years. This puts cash back into investors’ hands sooner, allowing them to put their dividends to work immediately and to grow their wealth quicker through compounding.
Like any equities-based fund, returns are linked to the broader stock market, which can fall when economic conditions worsen. But this is a double-edged sword, as it also lets investors harness the wealth-building power of shares.
Bottom line
As I’ve said, a £20,000 investment in this portfolio could generate a £1,500 passive income next year. If put in our best-paying Cash ISA instead, that would be £880, assuming the interest rate doesn’t fall (which it almost certainly will).
But it’s not just juicy dividends that investors could enjoy with this diversified selection of shares. If the stock market rallies as it’s done in 2025, users of the investing ISA could enjoy spectacular share price gains along with a healthy second income.
