Cash ISAs explained

A cash ISA is a savings account where the interest is paid to you free of income tax, and it works in most respects like an ordinary savings account¹. The Financial Ombudsman describes cash ISAs as accounts "which work like a tax-free savings account"¹. You pay money in, the provider pays interest, and you take money out according to the account's rules. The difference is the tax treatment: a cash ISA protects your savings from the income tax that can otherwise apply to interest on your bank or building society savings².

Each tax year you can subscribe up to £20,000 across your ISAs, and until 6 April 2027 the whole of that amount can go into cash³. At Autumn Budget 2025 the government announced that, from 6 April 2027, the annual cash ISA limit for people below the age of 65 will be set at £12,000, within the overall annual ISA limit of £20,000³. Savers aged 65 and over keep the full £20,000 cash limit⁴.

Cash ISAs are held in large numbers across the UK. In the 2022 to 2023 period, cash ISAs accounted for 40.5% of the market value of ISA funds, and the number of cash ISA accounts subscribed to rose by 722,000⁵. This page explains how cash ISAs work, what the tax rules are, the different types of account, how to move money between providers safely, and how your savings are protected if a provider fails.

What a cash ISA is and how it works

A cash ISA is a wrapper around a cash savings account. The money you hold inside it is cash, not investments, and the interest the provider pays you is always free of income tax¹⁰. NS&I, one of the providers of these accounts, describes its Direct ISA simply as "a cash ISA"¹¹. The account itself can take the same forms as ordinary savings accounts: easy access, notice accounts, and fixed rate accounts with a set term.

The tax treatment is the defining feature. A cash ISA protects your savings from the income tax that is deducted at source by the taxman on your bank account². In practice, interest is paid gross, with nothing taken off, and you do not declare it to HMRC¹⁰. Because the interest is tax free, it also does not count towards your Personal Savings Allowance, the separate allowance that lets basic and higher rate taxpayers earn some savings interest outside an ISA without paying tax on it⁶.

The money you put in cannot go down in the way investments can. NS&I's guidance is blunt on this: cash ISAs "aren't subject to the risks of investing in stocks and shares, because the money you put in can't go down"⁹. The balance falls only if you withdraw money or if a penalty is applied, for example for early access to a fixed rate account. What cash cannot protect you from is inflation: over time, the purchasing power of the money can be eroded if interest rates are lower than price rises, though the tax-free status means more of the interest stays with you.

Cash ISAs are one of the most widely held savings products in the UK. In the 2022 to 2023 period, cash ISAs accounted for 63.2% of all ISA accounts subscribed to, and subscriptions grew by 34.7%, or £10.7 billion, driven largely by cash ISAs and Lifetime ISAs⁵. The rules that govern them are set by HM Treasury and HMRC in the ISA regulations, and providers must be authorised to manage ISAs. The rest of this page sets out those rules as they affect a saver.

Tax-free interest and the Personal Savings Allowance

Interest earned in a cash ISA is tax free, and it stays tax free. Which? summarises the position: "Cash Isas work like normal savings accounts, except the interest is always paid tax free"¹⁰. You do not declare the interest on a tax return, and it does not reduce any other allowance.

The Personal Savings Allowance (PSA) is the separate tax break that applies to savings held outside an ISA. The government's ISA reform factsheet is explicit about how the two interact: "The Personal Savings Allowance does not apply to any growth or interest paid in an ISA"¹². In other words, ISA interest sits outside the PSA altogether. If you use up your PSA on ordinary savings accounts, interest in a cash ISA continues to be tax free on top of that, and vice versa: interest in a cash ISA never eats into the PSA you might want for money held elsewhere⁶.

This matters most to savers with larger balances. A saver whose interest from ordinary accounts already exceeds their PSA pays tax on the excess, while the same money in a cash ISA would generate no tax charge at all. For a saver whose interest is comfortably within the PSA, the immediate tax saving from a cash ISA may be nil, and the choice then comes down to the rate on offer and the account features. The cash ISA vs savings account comparison goes through this trade-off in detail.

One rule change is worth knowing about if you hold cash inside other types of ISA. From the 2027 reforms, a charge applies to interest paid on cash held in a stocks and shares ISA or an Innovative Finance ISA. The legislation provides that "no relief from tax applies to such interest", and the account manager must pay a flat rate charge to HMRC at the savings basic rate in force for the year¹³. The government has confirmed that ISA managers pay this charge to HMRC and individuals are not required to declare the interest¹². This does not affect cash held in a cash ISA, which remains tax free.

The ISA allowance: £20,000 a year, with a lower cash limit coming

The overall ISA allowance is £20,000 per tax year. You can split it across cash ISAs, stocks and shares ISAs, Innovative Finance ISAs and Lifetime ISAs in any combination, as long as the total subscribed in the tax year does not exceed £20,000³. Which? puts it plainly: "You can put up to £20,000 in a cash and/or stocks and shares Isa"¹⁴. A Lifetime ISA subscription counts towards the allowance, and the government bonus paid on it does not¹⁵.

Under the current rules, up to £20,000 can be subscribed annually and the rules do not differentiate by age³. That means that as things stand today, the whole allowance can go into cash. That is set to change from 6 April 2027, when the cash element is capped at £12,000 for savers under 65, as the next section explains.

The allowance is use it or lose it. The tax year ends on 5 April every year and you must use all of your allowance by that date or lose it². NS&I's guidance confirms both halves of the rule: "You can't carry over unused ISA allowance into the next tax year and your allowance resets every 6 April"⁹. There is no mechanism for carrying unused allowance forward, unlike pension annual allowances, so a saver who wants to use the full £20,000 needs to have subscribed it before 6 April. The ISA deadline and the end of the tax year page covers the practical timing.

Two further rules shape how the allowance works in practice:

• You can open as many different adult ISA accounts as you like, as long as you keep within the ISA allowance rules⁹.
• There is no limit on the number of accounts you can pay into per tax year, provided the total subscribed stays within £20,000¹⁰.

Money you subscribed in previous tax years does not count against the current year's allowance. Only new subscriptions in the current tax year use it up, and transfers between providers do not use the allowance at all, as the transfer section below explains.

From April 2027: £12,000 in cash for under-65s

The biggest change to cash ISAs in years takes effect on 6 April 2027. At Budget 2025, the government announced that from that date the annual cash ISA subscription limit for individuals below the age of 65 will be reduced to £12,000, within the overall annual ISA limit of £20,000¹⁶. The measure amends the Individual Savings Account Regulations 1998 to reduce the annual cash ISA subscription limit to £12,000 for individuals aged under 65 from 6 April 2027¹⁸.

For savers aged 65 and over, nothing changes: HMRC's guidance confirms that "for investors aged 65 and over the annual subscription limit for a cash ISA will remain at £20,000"⁴. The higher limit for this group applies from the start of the tax year in which an individual turns 65²⁰. The government's explanation for the age split is set out in the legislation's explanatory material: the £20,000 limit is retained "in recognition of the need of those approaching retirement to restructure and derisk their investments", with transfers into cash ISAs allowed for this group²¹.

The change only affects new deposits. NS&I's guidance is reassuring for existing savers: "This change will only apply to new deposits you make from April 2027 and won't have any impact on savings you've already" made²³. Money already inside a cash ISA stays where it is, keeps its tax-free status, and can continue to be transferred between providers.

Alongside the lower limit, anti-circumvention rules close off routes around it. From 6 April 2027, transfers from a stocks and shares ISA or an Innovative Finance ISA to a cash ISA are prohibited where the account holder is below the age of 65²¹. The government summarises the purpose: the rules "prevent transfers from non Cash ISAs into Cash ISAs for the under 65s"²⁵. There are also tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is "cash like", a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA, and a prohibition on 100% cash-like investments⁴. For those aged 65 and over, the transfer restriction is disapplied, so this group can move money from other ISAs into cash, while the charge on interest on cash held in non-cash ISAs and the prohibition on 100% cash-like investments remain in place²⁰. The Building Societies Association has responded publicly to these rules, noting they are aimed at those who would otherwise "circumvent the reduced Cash ISA limit"²⁶. The full detail is on the changes to the cash ISA limit page.

Who can open a cash ISA

Since 6 April 2024, the minimum age for opening a cash ISA is 18. The legislation changed the eligibility test so that an applicant for an account that is not a Junior ISA or a Lifetime ISA must be "18 years of age or over"⁷. NS&I's product guidance states the same: "the minimum age for opening a cash ISA has increased from 16 to 18"⁶.

There is a saving for people who were caught by the change. Individuals who were 16 or 17 years old on 5 April 2024, and who have not subsequently reached 18, can continue to have, apply for or transfer a single cash ISA account²⁷. The explanatory memorandum to the regulations notes the transitional position alongside the general rule that a cash ISA may be opened from age 16 under the previous law²⁸. HMRC's statistics publications still describe the historic position that adult cash ISAs were available to children from the age of 16, and that eligible children could hold both a Junior cash ISA and an adult cash ISA²⁹. Anyone aged 16 or 17 who does not fall within the saving, or who has since turned 18, waits until 18 for a cash ISA, and can hold a Junior ISA in the meantime.

Other eligibility rules are straightforward but worth checking before applying:

• A cash ISA must be opened and held in the name of one person who owns the funds. Joint accounts are not permitted, and neither are accounts opened by power of attorney, guardianship or intervention order holders, as one provider's terms set out³⁰.
• You must be a UK resident, or in certain cases a Crown servant or their spouse, under the general ISA rules.
• You need a National Insurance number, which providers use to report ISA subscriptions to HMRC.

The who can open an ISA page covers the residency rules and the position for children in more detail.

Easy access, fixed rate or limited access: how each one behaves

Cash ISAs come in the same shapes as ordinary savings accounts, and the type you choose determines when you can get at your money and what happens if you do.

Easy access accounts, sometimes called instant access ISAs, are the most flexible: you can withdraw whenever you like. The trade-off is that the rate is variable, so the provider can reduce it, and easy access rates are often lower than rates on accounts with restrictions. Interest may be paid monthly or annually depending on the account; one easy access cash ISA on the market pays interest monthly³².

Fixed rate cash ISAs require you to keep your money in the account for a certain period of time, so you may face a penalty if you access the money early³¹. NS&I's guidance says the same: "You usually can't withdraw money during the fixed term without penalty, unless the product rules allow it"⁹. In exchange for giving up access, fixed rates are typically higher than easy access rates, and the rate is locked for the term, so it cannot be cut mid-way. Which? has also examined whether fixing beats the coming allowance cut for savers deciding when to act³². The fixed rate cash ISA page covers terms, early access charges and what happens at maturity.

Notice accounts sit in between: you can get your money, but only after giving notice, and the notice period varies by account. Limited access accounts allow a set number of withdrawals each year, with conditions attached to any more.

Whichever type you choose, the way interest is described is standardised. AER stands for Annual Equivalent Rate, and it "illustrates what the annual rate of interest would be if the interest was compounded each time it was paid"³³. Because AER builds in the effect of compounding, it lets you compare an account paying interest monthly with one paying annually on a like-for-like basis. The gross rate is the flat rate before compounding, so an account paying interest monthly will have an AER slightly above its gross rate.

Transferring a cash ISA without losing the tax-free status

Money saved in previous years can be shifted from ISA to ISA, switching provider, without losing the tax breaks². This is the single most important practical rule about moving ISA money: a transfer between providers is not a withdrawal, and it does not use any of your current year's allowance.

The process matters, because doing it the wrong way can do real damage. If you withdraw the money yourself and then pay it into a new ISA, you have made a withdrawal from the wrapper: the money loses its ISA status, and paying it back in uses your current year's allowance, if you have any left. If instead you instruct the new provider to transfer the account, the money moves provider to provider and stays inside the ISA wrapper throughout.

The steps in order:

1. Check that the new account accepts transfers in, and whether it accepts transfers of previous years' money as well as current year subscriptions. Not every account does.
2. Open the new cash ISA and tell the new provider you want to transfer an existing ISA, giving details of the old account. Never withdraw the money first.
3. The new provider requests the money from the old provider, and the old provider releases it under the ISA transfer rules.
4. The money arrives in the new account still inside the ISA wrapper, with its tax-free history intact.

Transfers can be full or partial: you can move the whole account or part of it, and moving previous years' subscriptions does not affect this year's allowance. The how to transfer an ISA page covers the mechanics, timings and what to do if a transfer is delayed, and ISA promotions and transfer offers explains boosted rates sometimes paid on transferred balances.

Where early withdrawals and transfers cost you

The costs of getting at your money early depend on the type of account. On easy access cash ISAs there is normally no charge at all: you can withdraw freely, and the only cost is the interest you stop earning. On fixed rate accounts the position is different. Fixed rate cash ISAs require you to keep your money in for the term, and you may face a penalty if you access the money early³¹. Penalties typically range between 90 and 365 days loss of interest for early closure or withdrawal³². In a worst case, a penalty can eat into the original deposit as well as the interest, so the terms of the specific account matter before you lock money away.

Notice accounts charge no penalty as such, but the notice period itself is a cost: your money is unavailable for the length of the notice, which can be a substantial wait on longer notice accounts.

The most severe charge in the ISA family applies to Lifetime ISAs, not ordinary cash ISAs. If you take money out of a Lifetime ISA for anything other than a first home purchase, or before age 60, you are charged 25% of the amount you withdraw⁹. The government's guidance is specific: "You'll pay a 25% charge if you withdraw money or transfer the Lifetime ISA to another type of ISA before 60"³⁵. Because the charge applies to the whole withdrawal, including the government bonus and its growth, you can get back less than you paid in. The Lifetime ISA withdrawal charge page works through the arithmetic.

From April 2027 there is also a transfer restriction to be aware of. Savers under 65 will not be able to transfer money from a stocks and shares ISA or an Innovative Finance ISA into a cash ISA⁴. This does not charge you anything, but it blocks a route that previously existed, so a saver who planned to derisk by moving investments into cash will need to be 65 or over to do it. Savers aged 65 and over are exempt from the restriction²⁰.

FSCS protection: up to £120,000 per person, per bank

Money in a cash ISA is a deposit, like money in an ordinary savings account, and it is protected by the Financial Services Compensation Scheme (FSCS). FSCS protects eligible deposits up to £120,000 per person or company, per authorised firm⁸. Its consumer guidance puts it simply: money is "automatically compensated up to £120,000 per eligible person, per bank, building society or credit union"³⁶. FSCS states that it "now protects eligible deposits from the first pound up to £120,000 per person, per authorised firm"³⁷.

The limit is per authorised firm, not per account or per brand. If you hold £70,000 in a cash ISA and £70,000 in an ordinary savings account with the same bank, only £120,000 of the £140,000 is protected, because both balances sit with one authorised firm. If the two accounts are with different authorised firms, each balance is protected separately up to £120,000. This is why spreading very large savings across providers can matter, and the FSCS has a protection checker on its website so you can confirm which firms share an authorisation³⁶.

Joint accounts are protected too, at the same limit per eligible person, so two holders of a joint account are each covered up to £120,000³⁸. NS&I notes that protection for its accounts is normally up to the value of £120,000 per person³⁹.

Compensation is automatic: if a bank, building society or credit union fails, FSCS pays eligible depositors, and you do not have to apply to the provider first⁸. The how your ISA is protected page covers the detail, including the position for stocks and shares ISAs, where protection works differently because investments are not deposits.

Complaints and where to get help

If something goes wrong with a cash ISA, the first step is to complain to the provider. Providers must give a final response, and if you are not satisfied with it, or if eight weeks pass without one, you can take the complaint to the Financial Ombudsman Service. The ombudsman handles complaints about ISAs, including cash ISAs, and its service is free to consumers¹.

The volume of complaints gives a sense of what goes wrong. In the first quarter of 2026/27, 620 complaints were opened about cash ISAs, including cash Lifetime ISAs and Help to Buy ISAs, with a 40% uphold rate⁴⁰. A year earlier, in the first quarter of 2025/26, the equivalent figure was 391 complaints with a 37% uphold rate⁴¹. An upheld rate of around a third to two fifths means providers are getting things wrong in a substantial minority of the cases the ombudsman examines. For comparison, complaints about deposits and savings accounts excluding cash ISAs numbered 1,294 in 2025/26⁴³.

Common grounds for complaint include transfer delays, interest calculated or paid incorrectly, and errors in applying the ISA rules that can put the tax-free status at risk. If a provider's error breaks the ISA rules, there are correction procedures, covered on the when an ISA subscription breaks the rules page. The complaining about an ISA provider page sets out the process step by step, and the ombudsman's own ISA page explains what it can and cannot look at¹.

Who provides cash ISAs in the UK

Cash ISAs are offered across the savings market: high street banks, building societies, online-only banks, and NS&I, the government's savings provider. FSCS protection applies to deposits with banks, building societies and credit unions authorised in the UK, which is the universe of firms that can hold your cash³⁸. Because the market is broad, rates and features vary widely between providers, and the right account depends on how much access you need and how long you can lock money away.

NS&I is a distinctive presence because it is backed by the Treasury rather than being a bank, and its Direct ISA is a straightforward easy access cash ISA whose interest is tax free and does not count towards your Personal Savings Allowance⁶. Building societies, including regional societies, offer a range of easy access, notice and fixed rate cash ISAs, often with terms aimed at local savers. Online banks compete mainly on easy access and fixed rate accounts, and one easy access cash ISA on the market pays interest monthly³². Providers set their own minimum deposits and terms: one provider's easy access cash ISA summary box sets out the eligibility conditions, including that the account must be held in the sole name of the owner of the funds³⁰.

When choosing between providers, the practical checks are whether the account accepts transfers in, whether it is flexible, what the withdrawal rules are, and whether the provider shares a banking licence with another brand you already save with, since that affects how your £120,000 FSCS limit is used³⁶. The banks and building societies directory lists the firms in the market, and the savings accounts guide explains the account types available outside the ISA wrapper.