Cash ISAs: A complete guide
Read more about the popular tax-free savings wrappers - how they work and the pros and cons

What is a cash ISA?
A cash ISA (Individual Savings Account) is similar to a regular savings account, but with the key selling point that there's no tax to pay on any of the interest you earn.
You can put away up to £20,000 in a cash ISA every tax year (the tax year runs from April). And you've got a choice of several different types of cash ISAs, including fixed rate ISAs and variable rate cash ISAs.
ISA savings are in addition to the Personal Savings Allowance (PSA), which allows basic rate taxpayers to earn £1,000 of savings interest a year without having to pay any tax on it.
If you’re a higher rate taxpayer, paying tax at the 40% rate you qualify for a lower PSA of £500 a year.
If you’re an additional taxpayer earning £150,001 or more, you won’t get an allowance at all.

How do cash ISAs work?
Thinking of saving into a cash ISA? Here's what you need to know:
Cash ISAs are usually simple to open online or in a branch, with no set-up fees to pay
You can save up to £20,000 tax-free each tax year and your account will earn interest just like a regular savings account
Choose from easy access, regular saver, fixed rate, or junior ISAs for under 18s
Different ISAs have slightly different terms. For example, there may be restrictions on withdrawals from fixed rate cash ISAs
You can transfer ISA funds from previous tax years to higher paying ISA account
Never close an ISA if you decide to switch, though, as this will mean losing the tax benefit on your savings. Instead, contact your new ISA provider and ask them to arrange the transfer.
What should I consider before opening a cash ISA?
The interest rate. This will dictate how much of a return you receive on your savings. Note that initial high introductory rates can often drop after 12 months – so at this point you may want to transfer your ISA money to a better paying account
Type of account. Easy access, fixed or regular saver? Decide which type of cash ISA suits you best, what sort of a return you want and how quickly you might need to access the money
Is there a better ISA option? As well as cash ISAs, you could also consider a stocks and shares ISA. Here your money is invested in the stock market, so while there could be more reward, there is also risk to your money (the value of investments can go down as well as up)
You can only open one cash ISA each year. Think carefully before deciding which cash ISA to opt for. You can also take out a stocks and shares ISA and innovative finances ISA in the same year – but your total ISA savings can’t exceed £20,000 in any tax year
Know when the ISA deadline is. The tax year ends on 5 April. If you don’t invest before then, your tax-free allowance for the year will be gone as any unused allowance can’t be carried over
What's the difference between a cash ISA and a stocks and shares ISA?
Cash ISAs aren't too dissimilar from a savings account or savings bond, but with the key difference that your returns on cash ISAs are tax-free. You simply deposit your money for a set amount of time and you'll get a guaranteed return on your money.
Stocks and shares ISAs are more akin to an investment product, where you're investing in the stock market. When you open one, you'll typically be asked to choose an investment fund into which you'd like to put your money. These are then managed on your behalf.
Historically, returns are better on stocks and shares ISAs than cash ISAs. But the critical thing to note is that, like any investment that's linked to the stock market, with a stocks and shares ISA there's a chance you could lose money too.
Both stocks and shares ISAs and cash ISAs allow you to deposit up to £20,000 per tax year and benefit from tax-free returns.
How many cash ISAs can I have?
You can have multiple ISAs, but the golden rule is that you can open only one cash ISA in each tax year.
So, if you have opened a cash ISA in this current tax year (the period between April 6th 2022 - 6th April 2023), you cannot open another one until after April 6 2023 when the 2023/2024 tax year officially begins.
Note, however, that transfers from previous years’ ISA funds don’t count.
That means that even if you have opened a cash ISA this tax year and paid new funds into it, you can still transfer funds from previous cash ISAs into another ISA account – so long as you don’t top it up.
What allowance will I get for a cash ISA?
The annual limit for cash, stocks and shares and innovative finances ISAs combined is £20,000. You can invest the full allowance in cash if you want to, or in stocks and shares, or in innovative finance ISAs, or a combination of these.
If you take money out of your ISA, you can also pay it back in (in most cases) without this affecting your annual ISA allowance. In other words, if you put £20,000 into your ISA this tax year and then withdraw £1,000, you can pay this £1,000 back in if you want to and you won’t exceed your allowance. Always check the terms of your specific ISA provider however, as the rules can vary.
What interest rate can I get with a cash ISA?
The interest rate you receive will depend on the type of cash ISA you get and the provider you choose.
Fixed rate cash ISAs will guarantee your return for a set period, but variable rate cash ISAs could change if the provider decides to lower its interest rates.
You can easily compare interest rates with MoneySuperMarket before deciding which cash ISA to go for.
Ready to see what's on offer right now? Find out more and compare cash ISAs at our dedicated page.
What are the cash ISA rules?
The rules for cash ISAs are pretty easy to get to grips with. Read on and we'll get you up to speed quickly..
You can open one cash ISA per tax year and the maximum you can put in is £20,000
You can also transfer money you hold in an existing cash ISA to a new cash ISAs or multiple ISAs, with the option to split the sum you're transferring between different providers to suit you
To switch between cash ISA providers, you'll have to ask your new provider to carry out the transfer. If you don't and withdraw the money yourself, you'll lose your tax-free allowance on the entire sum
You can transfer money from a stocks and shares ISA into a cash ISA, too. Once again, though, you'll to fill in a form and give it to the new provider, who'll take care of the transfer
Keen to get the 25% top-up on offer with Lifetime ISAs? Good news. You can transfer the money from a cash ISA to qualify for the government bonus
What are the pros and cons of cash ISAs?
There are pros and cons to saving in a cash ISA. These include:
Advantages
Cash ISAs provide tax-free savings
Unlike stocks and shares ISAs, with a cash ISA there is no risk that the value of your savings will go down
You can transfer your cash ISAs to better paying accounts and retain the tax advantages
Disadvantages
High interest rates often fall after a year
Money may be locked away with a fixed rate cash ISA
Not all accounts accept transfers in from previous years and exit fees can apply
Can I switch my cash ISA from a previous tax year?
Yes. You should consider switching if you find an account that pays a higher rate of interest. But first check whether the new provider accepts transfers and whether your current provider would charge a penalty for moving your money.
You can transfer savings from both the current and previous years. Money from previous years can be split between new cash ISAs, and you can choose to transfer only a portion of the holding in an existing ISA.
However, if you decide to transfer money from the current year’s ISA, you must switch the full amount. Let’s say you put £5,000 in an ISA in the current tax year and £3,000 in the previous year. If you want to switch to a different ISA in the current year, you would have to transfer the full £5,000 from this year’s ISA. But you could choose to switch only £1,000 from the previous year.
Either way, do not close an ISA if you decide to switch as this will mean losing the tax benefit. Instead, contact your new provider and ask it to arrange the transfer.
What are the alternatives to cash ISAs?
There are lots of alternatives to cash ISAs if you want to save or invest your money. For example:
Stocks and shares ISAs - tax-free investments. With a stocks and shares ISA (sometimes called an equity ISA) your money is invested on the stock market so while there is the potential for greater returns, there is more risk too as the value of your investment could fall.
Savings accounts – there are lots of different options for savings, from easy access savings and regular saver accounts to fixed rate bonds. It’s worth comparing potential returns with cash ISAs before making a decision.
Interest-paying current accounts – some current accounts pay higher interest on your in-credit balance, although the interest pay out is often capped and the accounts may charge a monthly fee.
Premium bonds - while premium bonds do not pay interest each bond is entered into a monthly draw, so you have a chance of winning a cash prize every month and all your savings are safe as the products are government-backed
Other useful guides
We have a wide range of guides to help you with your savings and ISA decisions.
Compare cash ISAs with MoneySuperMarket
It’s quick and easy to compare our best cash ISAs. We'll show you a list of all our available cash ISAs in one place.
You can then compare by interest rate, minimum and maximum deposit and how quickly you can access your money. When you find the cash ISA you want, simply click straight through to the provider to apply.