Cash ISA vs savings account

A cash ISA is a savings account where the interest is paid tax-free. An ordinary savings account can pay interest that counts towards your personal savings allowance, and once that allowance is used up, tax is due on the interest. Both come in instant access and fixed rate versions, and both are offered by banks, building societies and credit unions.

The ISA allowance is £20,000 for the 2026/27 tax year. From 6 April 2027, the amount that can go into a cash ISA each year falls to £12,000 for anyone under 65, while the overall £20,000 ISA allowance stays the same. Savers aged 65 and over keep the full £20,000 cash ISA allowance.¹

The choice between the two is not simply about tax. Rates on cash ISAs and ordinary savings accounts move around, and in some periods ordinary accounts have paid more on average. What matters is the rate on the specific account, the tax position of the saver, and how much access is needed.

The difference: a cash ISA pays interest tax-free, a savings account may not

A cash ISA works like a tax-free savings account. Interest is paid without tax, and it does not count towards the personal savings allowance.⁴ The personal savings allowance is the amount of savings interest a person can receive before paying tax on it, and savings held in tax-free accounts such as ISAs do not count towards it.⁹

An ordinary savings account is different. Interest is paid gross, but it counts towards the personal savings allowance. Once interest goes above that allowance, tax is due at the saver's marginal rate. For a higher-rate taxpayer, that can turn a headline rate into a lower effective return.¹⁰

The gap between the two is not fixed. One comparison found that a one-year fixed cash ISA and a savings account differed by £121 in interest over a year, and that a top instant-access cash ISA could yield £152 more interest after a year than the market-leading savings account for a higher-rate taxpayer with £20,000, assuming the variable rate stayed the same.¹⁰ Another example found an easy access cash ISA paying almost £100 more than the top instant-access savings account once tax was deducted, again for a higher-rate taxpayer with £20,000.¹⁰

Those figures depend on the rates at the time and on the saver's tax band. For a basic-rate taxpayer with modest savings, the tax difference may be small or nil. For a higher or additional-rate taxpayer with a larger balance, the tax-free wrapper can matter more.

Instant access or fixed: how cash ISAs and savings accounts compare on rates

Both cash ISAs and ordinary savings accounts come in instant access and fixed rate versions.¹¹ The trade-off is the same in each case: instant access gives flexibility but a variable rate that can go up or down, while a fixed rate locks the money away for a set term in return for a rate that is fixed for that period.¹²

On rates, the picture is mixed. In 2025-26, instant access savings accounts enjoyed higher rates on average than instant access cash ISAs, though there were three months in which average cash ISA rates were on top. In the same period, fixed-rate standard savings accounts paid higher rates on average than fixed-rate cash ISAs.¹⁴

That does not mean ordinary accounts always win. The averages hide a wide spread between the best and worst accounts in each category. A saver comparing a specific cash ISA with a specific savings account may find either one ahead. The gap between the best easy-access and top fixed-rate deal has been more than a percentage point at times, which is a bigger difference than the tax treatment alone.¹⁵

For a higher-rate taxpayer, the tax-free status of a cash ISA can close or reverse a rate gap. For a basic-rate taxpayer with interest below the personal savings allowance, the tax advantage may be nil, and the decision comes down to the rate and the access terms.

Cash ISA allowance: £20,000 now, £12,000 cash cap for under-65s from April

The overall ISA allowance is £20,000 per tax year, and it covers all ISA types together.⁴ For the 2026/27 tax year, a saver can put up to £20,000 into a cash ISA.³

From 6 April 2027, the cash ISA subscription limit falls to £12,000 for individuals aged under 65.¹ The overall ISA allowance stays at £20,000, so the remaining £8,000 can go into other ISA types, such as a stocks and shares ISA.² Savers aged 65 and over keep the full £20,000 cash ISA allowance.²

The higher limit for over-65s applies from the start of the tax year in which the individual turns 65.¹⁸ The change was confirmed in the 2025 Budget and set out in draft legislation.¹

For a saver who wants to hold more than £12,000 in cash within an ISA from April 2027, the options are to use a stocks and shares ISA for the remainder, or to hold the excess in an ordinary savings account outside the ISA wrapper. The first keeps the tax-free status but introduces investment risk; the second keeps the money in cash but exposes the interest to tax above the personal savings allowance.

Access and withdrawal rules

Cash ISAs must allow access to the money, even on fixed rate accounts, though withdrawals from a fixed rate account may be subject to a charge.¹⁹ Easy access cash ISAs allow withdrawals at any time.²⁰

Taking money out of a cash ISA does not lose its tax-free status.²¹ With a flexible ISA, a saver can replace cash withdrawn earlier in the same tax year without that replacement counting towards the annual limit.²² Not all cash ISAs are flexible, so the terms of the specific account matter.

A cash ISA cannot be held by two people. Couples cannot use a cash ISA to save together, though each person can hold their own.¹⁶ Ordinary savings accounts can be held jointly.¹⁶

For fixed rate cash ISAs, the maturity terms set out what happens at the end of the term. Some roll into a variable-rate cash ISA. The TSB Fixed Rate Cash ISA, for example, matures into a Cash ISA Saver at the end of the term.²³ The rate on the maturity account may be lower than the fixed rate, so it is worth checking the terms and deciding whether to move the money.

Other ISA types and where cash sits within them

There are four types of ISA: cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs.⁴ A cash ISA is a deposit savings account.²⁵ A stocks and shares ISA holds investments, and any cash account linked to it is not a savings account and does not pay credit interest.²⁶

A lifetime ISA can hold cash or stocks and shares.²⁷ It is designed for a first home or retirement, and withdrawals for other purposes may incur a charge.

From 6 April 2027, transfers from a stocks and shares ISA or an innovative finance ISA into a cash ISA will not be permitted for account holders under 65.² People aged 65 or over at the end of the tax year will still be able to make that transfer.¹⁷ Transfers from a cash ISA into a stocks and shares ISA remain possible.²

The rule is an anti-circumvention measure, intended to stop people moving investments into cash ISAs to take advantage of the higher cash limit for over-65s.²

Who provides cash ISAs and savings accounts

Cash ISAs and ordinary savings accounts are offered by banks, building societies and credit unions.¹¹ The Financial Ombudsman Service handles complaints about ISAs, and received 1,619 complaints about cash ISAs, including cash lifetime ISAs and help to buy ISAs, in 2025/26.²⁸

ISAs were introduced on 6 April 1999, replacing the earlier Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs).²⁹ The cash ISA is one of the four types available today.⁴

For a saver who is unsure which type of account suits their circumstances, free and impartial guidance is available from MoneyHelper, and debt advice charities can help where savings sit alongside problem debt.