What is a cash ISA?
Cash ISAs offer a tax-free way to save, with the flexibility to open and pay into multiple accounts. Here, we explain how they work, the advantages and drawbacks, and how to choose the right option for your needs.
Key takeaways
You can save up to £20,000 across ISAs in the 2026/27 tax year.
You can open and pay into multiple cash ISAs, as long as you stay within your overall annual ISA allowance.
Eligible savings are protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person, per authorised firm.
From 6 April 2027, the cash ISA limit will fall to £12,000 for people under 65, while the overall ISA allowance will remain £20,000. People who turn 65 during the tax year, or are already 65 or over, will be able to save up to £20,000 into cash ISAs.
What is a cash ISA?
A cash ISA (individual savings account) works in a similar way to a standard savings account, but you do not pay income tax on the interest you earn.
There are several types of cash ISA, including easy-access and fixed-rate accounts. There are also cash Lifetime ISAs, which are designed to help eligible savers buy their first home or save for later life.
Money held with an eligible UK-authorised bank, building society or credit union may also be protected by the Financial Services Compensation Scheme (FSCS).
How do cash ISAs work?
Here are some of the key things to know about cash ISAs:
You can open and pay into more than one cash ISA in the same tax year, provided you stay within your overall ISA allowance.
Cash ISAs come in different forms, including easy-access, regular saver and fixed-rate accounts. Junior ISAs are available for children under 18.
Withdrawal rules vary between accounts. Fixed-rate cash ISAs, in particular, may charge a penalty or reduce the interest you receive if you withdraw early.
You can transfer all or part of an existing ISA to another provider, subject to the provider accepting transfers. To keep the money within its tax-free ISA wrapper, arrange the transfer through the new provider rather than withdrawing it yourself.
At present, you can transfer between different types of ISA, including from a stocks and shares ISA to a cash ISA.
You can usually open a cash ISA online, through an app or in branch, depending on the provider.
To open an adult ISA you normally need to be aged 18 or over and UK resident, although there are some exceptions for Crown servants and their spouses or civil partners. Junior ISAs are available for under-18s.
🚩 Cash ISA rules are changing from 6 April 2027. People under 65 will be able to pay a maximum of £12,000 a year into cash ISAs, within the overall £20,000 ISA allowance. People who turn 65 during the tax year, or are already 65 or over, will retain a £20,000 cash ISA limit. The government also plans to stop under-65s transferring money from stocks and shares or innovative finance ISAs into cash ISAs.
What should I consider when choosing an ISA?
Here are some key things to consider when choosing an ISA:
Have I found the best interest rate?
Aim for the best returns, but be wary of introductory rates that may drop after a certain period.
When can I access the money?
There may be restrictions on when you can withdraw your money from a cash ISA, especially if you’ve chosen a fixed-rate account. Make sure you’re happy with this. If you need access to your money at short notice, an easy-access cash ISA may be a better option.
How will I manage the account?
You can choose from accounts that work via an app, online, by post, by phone or through a bank branch.
Is it better to invest my money?
Beyond cash ISAs, there are stocks and shares ISAs which you can use to invest. These involve more risk but potentially higher rewards as your money is invested in the stock market.
Can I transfer in or out easily?
Flexibility to move your cash to another ISA later can help you take advantage of better rates, but providers have different rules over transfers.
Am I within the ISA deadline?
You must use your ISA allowance by the end of the tax year on 5 April. Any unused allowance cannot be carried over to the next tax year.
Do cash ISAs affect your personal savings allowance?
No. Interest earned within a cash ISA is tax-free and does not use up your Personal Savings Allowance (PSA).
For the 2026/27 tax year, basic-rate taxpayers can generally earn up to £1,000 of savings interest outside an ISA without paying tax, while higher-rate taxpayers have a £500 allowance. Additional-rate taxpayers do not receive a Personal Savings Allowance.
This means a cash ISA may become particularly useful if the interest you earn on savings outside an ISA is likely to exceed your Personal Savings Allowance.
From 6 April 2027, the basic, higher and additional rates of income tax charged on taxable savings income are due to rise to 22%, 42% and 47% respectively, while the £1,000 and £500 Personal Savings Allowances will remain in place.
What's the difference between cash ISAs and stocks and shares ISAs?
The main difference is what happens to your money and the level of risk involved:
With a cash ISA, you earn tax-free interest on your savings. The interest rate may be fixed for a set period or variable.
With a stocks and shares ISA, your money is invested. It has the potential to grow by more than cash over the longer term, but its value can fall as well as rise, so you could get back less than you invested.
In the 2026/27 tax year, you can save or invest up to £20,000 across your ISAs in total.
What interest rates are available with cash ISAs?
Interest rates for cash ISAs vary based on the type and provider. It’s worth shopping around to take advantage of new accounts and bonus offers and you may find you can get a better rate from challenger banks, rather than sticking with what's on offer from the best-known, high-street banks.
As of today, the best rate for a cash ISA is 4.76%
Are cash ISAs safe?
Eligible money held with a UK-authorised bank, building society or credit union is protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person, per authorised firm if the firm fails.
The limit applies across accounts held under the same banking licence, so accounts with different brands may share one £120,000 protection limit if they operate under the same licence.
You can find out more about how FSCS protection works with our guide and check whether your money is secure with the FSCS’s protection checker.
What are the pros and cons of cash ISAs?
There are advantages and disadvantages to saving in a cash ISA. The main ones include:
Pros
Interest earned within the ISA is free from income tax.
Cash savings do not fluctuate in value in the way investments can.
Easy-access and flexible cash ISAs can give you convenient access to your money.
Eligible deposits can be protected by the FSCS up to £120,000 per person, per authorised firm.
Cons
Cash may produce lower long-term returns than investments, although investment returns are not guaranteed.
Your savings can lose purchasing power if the interest you earn is below inflation.
You do not benefit from potential investment growth or dividends.
Fixed-rate ISAs may charge a penalty or reduce the interest you receive for withdrawing early.
How do you transfer an ISA?
Moving an existing ISA can help you take advantage of a better rate or find an account that better suits your needs.
Before transferring:
Check that the new provider accepts transfers.
Check whether your existing provider charges a penalty or loss of interest for transferring, particularly if you have a fixed-rate ISA.
Ask the new provider to arrange the transfer. Do not withdraw the money yourself and then pay it into another ISA, as this could remove the money from its existing tax-free ISA wrapper and affect your annual ISA allowance.
You can transfer all or part of an ISA, including money paid in during the current tax year, although individual providers may apply their own transfer restrictions.
Read our guide on switching your ISA funds for more information.
Other useful guides
We have a wide range of guides to help you with your savings and ISA decisions.
Compare cash ISAs with MoneySuperMarket
When you’re ready to explore your options, you can compare cash ISAs on MoneySuperMarket. Filter and compare accounts by interest rates, deposit requirements, and access to your money to find the right ISA for your needs.
You can also review both fixed and variable-rate ISAs, or browse all of our top savings accounts to make sure you choose the best option for your circumstances.
Author
Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
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Alan Cairns
Senior Content Editor
Alan breaks down money, home, and energy topics into plain English to help you save money. Ask him about pound cost averaging or Balkonkraftwerk.
