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Cash ISAs

  • Make the most of tax-free savings
  • Grow your money with interest on your savings
  • Compare different types of accounts to suit your needs

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Compare cash ISAs

An ISA is a flexible way to save, and you don’t have to pay tax on your interest. Since ISAs were introduced, the amount you can put into them has grown and you can now stash a lot of savings away. Comparing cash ISAs is a great way to get a better rate. Compare different cash ISAs with Compare the Market today.

What are cash ISAs?

Cash ISAs are essentially tax-free savings accounts. They’re much the same as other savings accounts, except for that all-important tax benefit. Everyone has a personal allowance that they can put in an ISA. For the tax years 2023/24 and 2024/25 it’s £20,000. 

Different cash ISAs offer different interest rates and features – which is why it’s so important to compare cash ISAs before you choose.

How do cash ISAs work?

Essentially, cash ISAs all work in the same way. You open your account and pay in your savings. Interest is then paid tax free on those savings. But there are some differences, depending on the kind of account you choose.

Instant access ISAs are ideal if you need the flexibility to withdraw your money whenever you need it. But you might find that fixed-rate ISAs pay more interest as you agree to lock your money away for a fixed period of time.

Some ISAs operate through a bank or building society branch, while others are by phone or online only.

In the past you’ve only been allowed to have one cash ISA a year. But from 6 April 2024, you’ll be able to pay into multiple ISAs of the same type.

For example, you could put some money in an instant access ISA and the remainder of your allowance in a higher-earning fixed rate ISA, with the same or a different provider, to help you maximise the interest earned.

You’re only allowed to pay in a maximum of £20,000 across your various types of ISA in a tax year.

What types of cash ISA are available?

When considering the best cash ISA for you, take a look at:

  • Easy access ISAs let you pay in and take out money whenever you like, meaning you have instant access to your money. However, unless you have a flexible ISA, taking money out will mean that you could lose your tax-free allowance on that money. For example, if you withdrew £1,000 from your easy access ISA but wanted to put it back in shortly afterwards, you’d need to wait until the new tax year.
  • Fixed-rate ISAs offer a fixed interest rate that’s often higher than an instant access ISA, but you have to lock your money away for a set term. If you withdraw your money early, you’ll have to pay a penalty fee. Some fixed-rate accounts offer the flexibility of a limited number of withdrawals. If you make more than this, your interest rate could go down or you may have to pay a penalty fee. 
  • Lifetime ISAs are available to anyone aged 18-39. They can be used to help buy your first home or as a savings pot for retirement. You can’t compare Lifetime ISAs with Compare the Market.
  • Junior ISAs allow you to save for your child’s future. Your child must be under 18 and living in the UK (unless you’re a Crown servant or they depend on you for care). Junior ISAs come in the form of both cash ISAs and stocks and shares ISAs. Until the child is 16, you’re responsible for the account on their behalf. The child can’t withdraw the money saved until they turn 18. You can’t compare Junior ISAs with Compare the Market.
  • Notice ISAs require you to give notice when you want to withdraw your money. The notice period varies among providers, but expect somewhere in the region of 30 to 195 days. Some notice periods can be longer, though – up to a year.
  • Regular saver ISAs are good for savers who put money away regularly. To qualify for higher interest rates, you’ll have to make a minimum deposit each month, which can vary among providers. You typically can’t make up any missed monthly payments and you may get a reduced interest rate if you miss payments.

Why might you choose a cash ISA? 

Cash ISAs are a reliable way to earn interest on your savings without paying tax. While the introduction of a personal savings allowance has meant that you can earn tax-free interest on ordinary savings accounts, this is limited to:

  • Basic rate tax payers – £1,000 interest per year
  • Higher rate tax payers – £500 interest per year
  • Additional rate tax payers – £0

If you’re earning more than £1,000 in interest each year and you feel you’re currently paying too much tax on your savings interest, it could be a good idea to shift your money to an ISA. Don’t forget, you can maximise both your personal savings allowance and your ISA allowance at the same time.

What should you consider when comparing cash ISAs?

You’ll want to make sure a cash ISA is the right fit for you. Here are some of the most important things to consider when comparing cash ISAs:

Fixed term or instant access
Fixed-term ISAs usually offer better rates of interest, but require you to lock your money away for a set period, with penalties for withdrawing early. Instant-access ISAs offer greater flexibility, allowing you to withdraw at any time. However, you won’t get the best ISA rates.

Cash ISA rates
Once you’ve decided which type of cash ISA you’re investing in, you’ll want to compare interest rates. That’s where Compare the Market can help. And it’s a good idea to regularly check for better rates, as you can transfer your cash ISA as often as you like. The best rates are typically found with longer fixed-term ISAs.

Withdrawal fees
If you have a fixed-term cash ISA but find you need to take out money, you’ll be charged a withdrawal fee.

What are the pros and cons of cash ISAs?

Choosing to invest your money in a cash ISA has a range of benefits, but there are disadvantages to consider too.

Pros:

  • You won’t pay tax on interest earned – this is one of the main reasons why people open ISAs.
  • Flexibility when switching – you can transfer your ISA as many times as you like, whenever you like. This means you can take advantage of competitive rates at any time. You can also switch to a different type of ISA, which offers further investment flexibility.
  • No fees – cash ISAs have no monthly charges that you might find on other types of savings and current accounts.
  • No age limits – there’s no upper age limit for cash ISAs, while anyone under the age of 18 can have a Junior ISA opened in their name.

Cons:

  • The best returns require longer terms – if you want to take advantage of the best rates, you’ll need to tie your money into longer fixed terms.
  • Penalties for withdrawing early – if you have a fixed term ISA and need to withdraw your money early, you’ll have to pay a fee.
  • Deposit limits – cash ISAs have limits on the amount you can invest in each tax year. For the tax years 2023/24 and 2024/25, this is £20,000.

Is my money safe in a cash ISA?

If your cash ISA provider were to go under, up to £85,000 of your money would be safely covered by the Financial Services Compensation Scheme. If your savings have built up to more than this, in conjunction with any other money you have with the same bank or building society, it’s best to spread your money across different assets or ISAs from different financial institutions.

If you were to open another type of ISA, such as a stocks and shares ISA, you take on a certain level of risk - like any other type of investment. This means you might not get back as much as you put in, or you might even lose the lot.

What are the alternatives to cash ISAs?

The alternatives to cash ISAs include:

Stocks and shares ISAs

These allow you to invest in shares and you won’t have to pay tax on any potential profit or income. Stocks and shares ISAs are used as long-term investments, so be prepared to invest for a minimum of five years.

You should be careful with these investments. While they might make you more money in the long run, you could lose money if you’re not so lucky with the stock market. When investing in stocks and shares, it’s important to know that the value of your investments will change and that your capital is at risk.

Fixed-rate bonds

Fixed-rate bonds allow you to invest a large sum for a guaranteed return on investment, with a fixed interest rate. You won’t have access to your funds during this time, which means the best interest rates are tied to the longest terms, so this option is typically seen as a longer-term investment

Savings accounts

While not always offering interest rates as strong as ISAs, standard savings accounts can offer you greater flexibility. By comparing savings accounts, you’ll be able to find the best rates to help your savings grow. You may also have to pay tax on the interest earned if your total interest earned exceeds your personal savings allowance.

Current accounts

While you may not think it at first, there are a number of current accounts that offer competitive levels of interest that can be comparable to some ISAs and savings accounts. But you typically have to pay a monthly fee for these accounts, which could counterbalance the interest earned.

Premium bonds

Premium bonds allow you to invest your money in a monthly scheme. Each £1 bond is treated as an entry, with monthly prizes and jackpots won each month. You must invest a minimum of £25 to be eligible, and can invest a maximum of £50,000 per person. Earning money through premium bonds is purely through chance. There’s no level of interest, so you’re not guaranteed a return.

Peer-to-peer lending

Peer-to-peer lending allows you to invest your money as a loan to a borrower, who’ll then repay you with interest. Peer-to-peer loans usually offer higher rates of interest, which make them a potentially lucrative investment. However, they come with the risk of your borrower being unable to repay their debt, meaning you could lose your investment.

Innovative Finance ISAs

The Innovative Finance ISA was introduced in 2016. It allows you to pay your peer-to-peer interest earnings into an ISA account, which protects it from incurring tax.

Can I transfer from one cash ISA to another?

Yes, you can transfer your cash ISA savings from one account provider to another at any time, as many times as you’d like. You can also transfer your savings between different types of ISA. This allows you to take advantage of the best ISA rates or swap to another type of saving.

To transfer your cash ISA, you’ll need to get in touch with your ISA provider and fill out an ISA transfer form. Make sure you do this, as just withdrawing the money means you’ll lose the ISA’s tax benefits.

A like-for-like transfer should take no more than 15 working days. If you’re transferring to a different type of ISA, you can expect it to take up to one month.

Money deposited in previous years can be transferred in part or entirely. From 6 April 2024, you can make partial transfers of the current year’s subscription. Previously you had to move it all.

Check with your provider for any restrictions they may have on transferring ISAs.

How can I find the best cash ISA rate?

Typically, longer fixed-rate accounts offer higher ISA rates, unless interest rates are expected to go down in future.

Fixed-rate accounts lock in your funds, restricting your access, but reward you with a higher level of interest. But with a fixed rate, if interest rates increase, you might miss out on higher rates as you’re locked in. But if they reduce, you’ll benefit from higher rates for longer.

 

How do I open an ISA?

Most account providers will let you open an ISA either in branch, over the phone or online. 

You’ll need to be a UK resident aged at least 16 to open an account up to 5 April 2024, and 18 from then on.

Other than that, you’ll just need to provider personal details, like your National Insurance number, address and occupation, along with ID to help prevent money laundering.

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Frequently asked questions

Can I make withdrawals from a cash ISA?

Yes, you can withdraw money from your cash ISA at any time. Check the terms of your ISA to see if you’ll be charged for making a withdrawal.

If you have a flexible ISA, you can make a withdrawal then put the money back in during the same tax year. This won’t reduce your current year’s ISA allowance.

If you have a fixed-term ISA, you’re likely to be charged a fee for withdrawing your money early. If you have a Lifetime ISA, you’ll have to pay a withdrawal charge of 25%.

What is the difference between a cash ISA and a savings account?

The main difference between cash ISAs and savings accounts is the way they treat the interest you earn. With a cash ISA, the interest you earn is completely protected from tax, for as long as you have the account.

But the interest earned from a savings account could be subject to tax. Depending on your personal circumstances, you can earn up to £1,000 in interest each tax year without paying tax on it, but anything beyond that is subject to tax.

Can I open a cash ISA with bad credit?

Yes, you can open a cash ISA regardless of your credit score. Unlike a standard bank account, cash ISAs aren’t categorised as credit products, so you won’t need to pass a credit check to open one.

Can I combine multiple old ISAs into one?

Yes, you can combine multiple ISAs into one. You can move ISAs into an existing ISA account (as long as the provider accepts ISA transfers) or you can transfer into a new ISA.

How many ISAs can I have?

In the past you could only open one ISA of the same type each year. However, from 6 April 2024, you’ll be able to open multiple ISAs of the same type, with the exception of the Lifetime ISA.

What happens to your ISA allowance at the end of the year?

Your ISA allowance resets each tax year. If you fail to use your full allowance for the year, it’s lost and you can’t carry it over into the new tax year.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.