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At a glance:
Cash ISAs are tax-free, which means you do not need to pay income tax on the interest you earn.
With a savings account, you may need to pay income tax on the interest you earn.
Savings accounts have less rules than Cash ISAs, for example, you can usually save more in a savings account.
What’s good about a Cash ISA?
Cash ISAs are tax-free, which means you do not pay income tax on the interest you earn.
The interest from a Cash ISA does not count towards your Personal Savings Allowance (PSA).
This is good news for savers who earn more interest than their PSA and do not want to pay tax.
Cash ISA savings from previous tax years stay tax-free (if they stay in an ISA). So, you can build up your tax-free savings year after year.
Different types of Cash ISA:
Easy access Cash ISAs: good for adding or taking out money when you need to. Your interest rate can go up or down.
Fixed rate Cash ISAs: good for lump sums you do not need access to. Your interest rate stays the same for term.
What to watch out for:
There’s a limit on how much you can save into ISAs each tax year. For the
2024/25
tax year, it’s £20,000
If you want to transfer money between ISAs, you need to use the ISA transfer process to make sure your money stays tax-free.
Some providers may limit how many Cash ISAs you can pay into each tax year, with them.
What’s good about a savings account?
There are less rules to follow compared to ISAs.
Most savings accounts let you save much more than the ISA allowance and open multiple accounts.
Different types of savings accounts
Regular savings account
Good for building up your savings over time.
There’s usually a limit on how much you can save each month and how often you can take money out.
You usually get more interest on this type of savings account compared to an easy access account.
Easy access
Good for everyday savings and short-term goals.
You can usually add money or take it out whenever you like.
You usually get more interest than a current account.
Fixed rate bond
Good for lump sums that you do not need access to.
You get a guaranteed interest rate for the term, often 1-5 years.
You cannot usually take money out during the term.
What to watch out for:
You may need to pay tax on the interest you earn.
There will be limits on how often you can withdraw money. It may be a year or longer.
The content on this page is for reference. It is not financial advice.
For help with money issues, try MoneyHelper.
For help with money issues, try MoneyHelper.
