Cash ISA: pros and cons
As with all ISAs, there are a number of pros and cons associated with cash options. As well as offering a low-risk way to save, some cash ISAs also allow you instant access to your money, making them well-suited to funding short-term projects.
Due to their low-risk profiles, cash ISAs can also provide an effective way to build rainy-day funds for emergencies – for example, an unexpected bill or sudden loss of earnings. However, cash savings have historically struggled to stay on top of inflation, meaning their buying power has been diminished.
Cash ISA benefits
The benefits of a cash ISA include:
- A simple way to save
- Instant access to money with some cash ISAs
- Rainy-day funds for emergencies.
Does inflation have an impact on cash ISAs?
Because of the way in which interest rates can fall, as well as rise, there is a risk that savings held in a cash ISA may struggle to keep pace with inflation.
In other words, even though your cash balance is steadily increasing, your money may be worth less in real terms as things become more expensive to buy.
For example, in 1980, £1 could buy you three loaves of bread. By the end of 2023, the average price for a single loaf of bread was £1.37. Due to inflation, £1 might not cover a single loaf, let alone three. And in the future, it's likely to buy even less.
You can see the potential impact of inflation on your savings in our handy inflation calculator.
