What is a cash ISA?

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A cash ISA is an individual savings account where you earn interest free from UK income tax, up to a personal yearly ISA allowance of £20,000. While cash ISAs typically offer lower interest rates compared to some other savings accounts, many people use them to save in a tax-efficient way.

In this article, you'll find out how cash ISAs work and how they compare with other savings options.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

A cash ISA is a type of individual savings account that lets you earn interest on your savings without paying tax. Any UK resident aged 18 or over can save up to £20,000 in a cash ISA in the 2025/26 tax year, which runs from 6 April 2025 to 5 April 2026. Following a recent change to cash ISA rules, if you were born between 6 April 2006 and 5 April 2008, you can still open one cash ISA before you turn 18.

Savings in a cash ISA don’t count toward your Personal Savings Allowance. Any interest you earn is tax-free (even if you’re a higher rate taxpayer) as long as you remain within your £20,000 ISA allowance. 

As with ordinary savings, there are various types of cash ISAs on the market. The best option for you will depend on your savings needs. The main types of cash ISA are explained below.

• Easy access ISAs – Easy access ISAs allow you to deposit and withdraw money any time you wish without incurring a penalty, although some providers may impose a limit on how many times you can do this.

• Fixed rate ISAs – A fixed rate ISA lets you lock away a lump sum of money for a set period in exchange for a competitive interest rate. Terms normally range from one year to five years, and accessing your cash before the term is up may incur a penalty of several months’ interest.

• Regular savings ISAs – This is a type of variable-rate cash ISA, meaning the provider could put the rate up or down at any point. You pay in a set amount each month. You can typically save up to £1,666 per month without exceeding the £20,000 annual ISA allowance, though some providers have a monthly limit lower than that.

• Notice ISAs – A notice ISA is almost a hybrid of an easy access ISA and a fixed rate ISA. It tends to pay better interest rates than easy access ISAs, but you need to give a set amount of notice when you want to make a withdrawal. The notice period varies between providers but it typically ranges from 30 to 120 days.

• Junior ISAs – This is an option for individuals under 18, so some people use them as a tax-efficient way to save for a child. You can only deposit up to £9,000 per tax year in a junior ISA.

• Lifetime ISA – The lifetime ISA is designed to help people save for a first home or retirement. You can put a maximum of £4,000 per tax year into a lifetime ISA and receive a 25% bonus from the government (up to £1,000 per year). However, you can only open a lifetime ISA if you’re aged 18 to 39.

You can put all of your ISA allowance into one or more cash ISAs, or you can divide it across other types of ISA, but your total contributions must not exceed £20,000. For instance, you could pay £8,000 into a cash ISA, £7,000 into a stocks and shares ISA, £4,000 into an innovative finance ISA and £1,000 into a lifetime ISA in the same tax year.

You can only open one of each type of ISA in any given tax year. So, for example, if you opened a cash ISA in May 2025, you won’t be able to open another one until the next tax year begins on 6 April 2025. However, you can pay into more than one cash ISA in the same tax year (depending on the provider), as long as your total contributions across all ISAs don’t go beyond the annual allowance. You can read more in our complete guide to how ISAs work.

Under thecash ISA rules, you can withdraw money and then return it to your account without it affecting your annual ISA allowance if you hold a flexible cash ISA. If your account doesn’t have this flexibility, any funds you withdraw and later reinvest will reduce your current year’s ISA allowance.

It is also worth looking at the terms of each account to see whether you might face a penalty for taking out money too many times or too early. Even some instant access cash ISAs reduce your interest rate after a certain number of withdrawals. If having access to your cash is important to you, you might also consider easy access savings accounts that tend to have more relaxed withdrawal rules.

Whether a cash ISA is right for you will depend on your individual circumstances. You’d firstly have to make sure you’re eligible, i.e. you’re over 18 and resident in the UK for tax purposes. After that, it’s worth thinking about your savings goals. With so many options available, cash ISAs can be a flexible choice. They may also suit those who prefer to avoid the risks that come with investing.

At the same time, it’s worth remembering that the personal savings allowance (PSA) lets basic rate (20%) taxpayers earn up to £1,000 in interest without paying tax on it. Higher rate (40%) taxpayers can earn up to £500 in tax-free interest. This means that many savers no longer need the tax-free advantages of an ISA.

If your savings income is unlikely to exceed your PSA, it can be a good idea to consider non-ISA savings products. That’s because the top-paying traditional savings accounts tend to offer more competitive interest rates than many cash ISAs.

However, if you have substantial savings, or you’re a high earner, ISAs can be very useful. Savings in a cash ISA don’t count towards your PSA, so if you’ve used up your £1,000 or £500 allowance, an ISA can still allow you to earn tax-free interest. Likewise, if you aren’t entitled to the PSA because you’re an additional rate taxpayer, an ISA can help to minimise your tax liability.

You can transfer money from previous ISAs into a new cash ISA account, providing you can access your funds and your new provider accepts transfers. With a range of rates available, it’s worth researching the market to see where you can find the best deal.

Consolidating old cash ISAs into a new account that pays a higher rate will boost your returns and make it easier to manage your savings. It will also make future transfers much simpler.

If you do want to make a transfer, it’s important to note that withdrawing and reinvesting the savings yourself   will count towards your ISA allowance for the current tax year (unless you have a flexible ISA).

Instead, contact your new ISA provider and request a transfer form. Your new provider will manage the switching process on your behalf and your money won’t lose its tax-free status.

Yes, as long as your ISA provider is covered by the Financial Services Compensation Scheme (FSCS). Under the FSCS, savings held in a UK-regulated bank or building society are protected up to £85,000 per eligible person, per bank. This applies to normal savings accounts too.

It’s also worth remembering that cash ISAs are a low-risk alternative to investment options such as stocks and shares.

Unless you have substantial savings, or you’re an additional taxpayer, it makes sense to consider non-ISA products as these typically offer higher rates.

Here are three alternatives:

1. Fixed rate bonds

If you like the idea of locking your money away for a set period, a fixed rate bond may be a good alternative to a fixed rate ISA. 

• No £20,000 limit – you can usually deposit up to £85,000

• Typically offers higher interest rates than ISAs

• Ideal for long-term savers who won’t need quick access to funds

You can read our article – fixed rate bonds vs ISAs – for a more detailed comparison.

2. Notice accounts

If you require more flexibility, you might want to think about a notice account. They work in a similar way to notice ISAs in that you need to give a short notice period to your provider before withdrawals.

• Usually requires 30-90 days’ notice to access funds

• No £20,000 limit on deposits

• Offers better access to your cash than fixed options

Visit our website for more information on the differences between ISAs and savings accounts.

3. Easy access savings accounts

If you’re looking for an alternative to an instant access cash ISA, a simple easy access savings account may be a good option. 

• No restrictions on withdrawals or top-ups

• Ideal for everyday savings or emergency funds

• Typically pays more than an instant access cash ISA

Although we don’t currently offer ISAs at Raisin UK, you can compare and open other types of savings accounts with competitive rates from our partner banks and building societies through our marketplace.

Simply register for a Raisin UK Account and log in to apply for your chosen savings account.

If you have any questions, our UK Customer Service team are happy to help. Contact us today.