A cash individual savings account (ISA) is a type of savings account where you don’t have to pay tax on any of the interest you earn on your money.
Here, we explain exactly how cash ISAs work and why it’s important to always compare rates on other types of savings accounts before opening one.
ISAs: the rules
At the start of every tax year you are given a new annual ISA allowance. For the current 2024/25 tax year this allowance is £20,000, and it will remain the same in the 2025/26 tax year. Once you’ve reached this limit then you can’t put any more money into ISAs until the next tax year starts.
You can put your whole allowance into a cash ISA, or you can put it in a stocks and shares ISA or a peer to peer lending ISA. Alternatively, you can split your allowance between all three of these.
If you don’t use your whole ISA allowance each year, you can’t roll the unused part over to the next tax year. For example, if you put away £15,000 this year, the remaining unused £5,000 of your allowance is wiped when the new tax year starts.
Stocks and shares ISAs and peer to peer lending ISAs (known as innovative finance ISAs) are usually best suited to those with an appetite for risk, and who can afford to leave their money untouched for a while.
Cash ISAs, however, are more appropriate for those who are risk-averse, and who want peace of mind that they’ll definitely get back what they put in, plus interest. They can be useful if there’s something big you’re going to need money for imminently, for example if you want to help your children out with a wedding or a house deposit, or maybe because you’re planning some home improvements.
Under the current rules, you can open multiple ISAs of the same type in any tax year if you want to. So if, for example, you want to open a fixed rate cash ISA and an easy access cash ISA, you are free to do this.
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1Annual Equivalent Rate correct as of 05 Mar 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.
Different types of cash ISAs
Not all cash ISAs are the same. Here’s our rundown of the different types you can to choose from.
Instant access cash ISAs
If you want to be able to make withdrawals at any time, instant access cash ISAs enable you to take your money out whenever you want without penalty. Rates on this type of account can often include a short-term bonus, so keep an eye out for this and make a diary reminder to switch again at the end of any bonus period.
Fixed rate cash ISAs
With a fixed-rate cash ISA, the interest rate you earn won’t change during the account term, but you cannot usually access your savings during this period. If you do need to take out your money within the fixed rate term you may face an interest rate penalty. In return for giving up your ability to withdraw money at any point, fixed rate cash ISAs typically pay higher rates of interest than instant access accounts. Terms vary from 1 to 5 (or more) years, so you’ll need to think carefully how long you want to tie your money up for.
Notice cash ISAs
A notice cash ISA, as the name suggests, requires you to give notice each time you want to make a withdrawal. For example, if you take out a 30-day notice ISA, you’ll need to notify your provider 30 days before you are able to take any money out. Again, in return for having less flexibility on withdrawing your money, you should expect to receive a higher rate of interest than with an instant access cash ISA.
Whichever type of cash ISA you choose, remember that HMRC only allows you to open one cash ISA each tax year. You can find some of the current best Cash ISA rates in our article Best cash ISA rates – which cash ISAs pay the most interest? which is updated weekly.
Boost your savings with 4.32% AER1
Make your money work harder with an OakNorth Easy Access Limited Edition account. For a limited time, you can get access to an even higher interest rate.
1Annual Equivalent Rate correct as of 05 Mar 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.
You can transfer old cash ISAs
If you have money in a cash ISA which you opened a while ago, it’s worth checking the interest rate as providers have a habit of enticing you in with market leading rates, and then dropping them over time. If the interest rate you’re earning on it is pretty low, instead of leaving your money there, it may be possible to transfer it into a new cash ISA so that you can benefit from higher returns.
Any money you transfer from cash ISAs won’t affect your current annual ISA allowance. If you’re transferring an ISA that you’ve paid into in the current tax-year, you have to move all of the current year contributions you’ve made across to your new account. For ISA balances from previous tax-years, you can choose to transfer all or some of your savings.
If you’d prefer to transfer to a different type of ISA, you can move any money built up in a cash ISA into an investment ISA or an innovative finance ISA without losing the tax benefits.
Remember though, not all ISA providers will accept transfers, and there may be charges involved if you switch, especially on investment ISAs or innovative finance ISAs, so always check with your provider.
Under flexible ISA rules, you can withdraw money from an ISA and return it within the same tax year, without this counting towards your annual ISA allowance. This can be useful for managing cash flow during the year, without missing out on your annual ISA allowance – however not all ISA providers offer a ‘flexible ISA’ so be sure to check with your provider before you withdraw the money. It’s also worth noting that you can’t use the flexible ISA features in combination with a transfer. So if you have withdrawn cash from your cash ISA and plan on using your flexible allowance to pay it back in, you’d need to pay the cash back into your existing cash ISA before you make your transfer.
Whilst it’s usually a simple and straightforward process to transfer an ISA, there are specific rules around how to move ISA cash so it’s important you check with your provider before doing so. The new provider will give you an ISA transfer form and this will enable it to move the money across for you whilst retaining its ISA status. Otherwise, if you simply withdraw the money yourself, you will lose its ISA status and any tax benefits associated with it.
Boost your savings with 4.32% AER1
Make your money work harder with an OakNorth Easy Access Limited Edition account. For a limited time, you can get access to an even higher interest rate.
1Annual Equivalent Rate correct as of 05 Mar 2025 and subject to availability. Terms and conditions apply. Minimum balance required for Limited Easy Access account is £20,000.
Is a cash ISA better than a regular savings account?
Before you open a cash ISA it’s worth checking the rates offered by other types of savings account to make sure you’re getting the highest interest rate possible on your money.
You can earn up to £1,000 in interest each year in any type of savings account without paying tax, thanks to the personal savings allowance (this drops to £500 if you’re a higher rate taxpayer and there’s no personal savings allowance if you’re an additional rate taxpayer). If you only have a small savings balance, this means your returns will usually be tax-free anyway.
However, it’s worth bearing in mind that if you are looking for a longer term home for your money and you have meaningful savings, then an ISA has a couple of benefits. Firstly, cash ISA interest doesn’t count towards your personal savings allowance, so if you do have a large amount of savings and think you might use up this allowance, cash ISAs are still very worthwhile.
A cash ISA could also be attractive if you are considering transferring it to a stocks and shares ISA in the future, but don’t want to invest right now. By using a cash ISA, you can make use of your annual allowance each year, which allows you to transfer to an investment ISA at some point in the future if and when you are ready to invest.
If you’re not sure whether a cash ISA is right for you, or whether a different type of ISA might be more suitable, you may want to consider seeking professional financial advice. You can find a local financial advisor on VouchedFor* or Unbiased, or for more information, check out our guides on How to find the right financial advisor for you.
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