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Finding the top ISA account to suit your needs

A Cash ISA, also known as a Cash Individual Savings Account, is a tax-free savings account. You can save money into your Cash ISA each tax year. The tax year runs for 12 months between April 6 and April 5 the following year.
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Guide - Top tips for getting the most from your cash ISAFinding the top ISA account to suit your needs

In the 2020 to 2021 tax year you're allowed to put up to £20,000 of your money into a Cash ISA.

Everyone aged 16 or over can have a cash ISA (but for some ISAs, usually with stocks and shares options, you must be 18). Otherwise, there is no age limit or preference to ISAs.

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.

Why have a cash ISA?

A Cash ISA could be suitable for you if you're looking to earn interest on your cash savings without having to pay tax. You must be a UK resident and aged over 16.

Cash ISAs are a low risk investment, because your money is held within the ISA wrapper by your ISA provider. Any interest you earn is added to your account tax-free, and you don't need to declare it on your tax form if you are filling in a Self-Assessment form for HMRC.

How do cash ISAs work?

Everyone can pay in £20,000 within the financial year. This limit only applies to the money paid into your account, not your overall ISA balance. So if you contribute every tax year, you can save up a good amount of money over the years.

There are restrictions on taking money out of your ISA, so you need to be sure that any cash you put into an ISA isn't money you will need in a hurry. For example, if you paid £20,000 into your ISA at the start of the tax year and then withdrew £1,000 a month later, you wouldn't be able to add any more money to your ISA during the same year. This makes ISAs slightly different from straightforward savings accounts, where you can add and withdraw money as you wish, without limits.

There are some ISAs that allow you to withdraw cash and then redeposit it within the same tax year, up to your total allowance. These are known as flexible ISAs.

The ISA allowance - how much you can save tax-free each tax year- runs from April 6 to April 5 the next year. If you don't add the full £20,000 to your account within the tax year, you lose that part of your allowance. The cap – known as your ISA or tax-free allowance – is set by the government. It sometimes changes in the Budget.

Can I open more than one Cash ISA in a year?

You can only open one Cash ISA per year. However, if you have an existing ISA from previous years and you find a better rate of interest with a new provider, you may be able to transfer all your ISA money across.

There are other types of ISA, including a Stocks & Shares ISA, which allow you to invest in shares in the stockmarket.

The ISA rules allow you to have a Cash ISA and a Stocks & Shares ISA at the same time and within the same tax year. You can divide your money equally, or put different proportions into the two different ISAs, up to your overall allowance limit of £20,000.

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Are ISAs different from savings accounts?

The main difference between an ISA and a savings account is that you don't pay tax on any interest you receive on money that you hold within an ISA. Also, ISAs are designed as a home for long-term money, not money you would need in a hurry.

The other thing to bear in mind is that with ordinary savings accounts, you have a tax-free savings allowance of up to £1,000 per year. This means that if you have savings outside an ISA, you are allowed to earn interest of up to £1,000 in any one tax year before you have to start paying tax. This is known as the Personal Savings Allowance (PSA).

This PSA £1,000 allowance is available to anyone who is a basic rate taxpayer. If you're a higher rate taxpayer, the allowance is reduced to £500, and if you're an additional rate taxpayer, the allowance disappears. Since the PSA was introduced in April 2016, the appeal of Cash ISAs has reduced somewhat, because you can earn a significant amount of interest before you have to pay tax.

Is it worth bothering with an ISA if I have a Personal Savings Allowance?

At the moment, interest rates are low and so very few people breach the £1,000 savings allowance in any one tax year. However, if interest rates were to rise, the benefit of a Cash ISA would become greater. Also, if you are a higher rate or additional rate taxpayer, the PSA allowance is much lower, which makes the tax-free advantage of an ISA that much greater.

What types of cash ISA are there?

There are three main types of cash ISA:

  • Instant access (or easy access) cash ISAs- these allow you to withdraw money from your account at any time without charge

  • Notice cash ISAs, which require notice – usually between 30 and 120 days – before you can access your money

  • Fixed-rate cash ISAs - these ISAs tie up your savings between one and five years, providing a fixed interest rate for that term

If you want to lock up your savings for a while, you might want to consider a fixed-rate cash Isa.

These lock away your money for a set period, usually between one and five years, and in return pay you a higher interest rate.

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.

Can I pay into two ISAs in one year?

Although you can only open one Cash ISA in a financial year, you can transfer your money to a Stocks and Shares ISA later. You can divide your ISA allowance between a Cash ISA, a Stocks and Shares ISA, and Innovative Finance ISA or a Lifetime ISA.

How many Cash ISAs can you have?

You can pay into one Cash ISA in a single tax year. However, you can have multiple Cash ISAs from different and previous tax years. You can have a Stocks & Shares and a Cash ISA within the same tax year, so long as you don't exceed your £20,000 ISA allowance.

You can find out more about ISAs, you can read our guide: https://www.uswitch.com/savings-isa/best-savings-accounts/

If you want to know more about Stocks & Shares ISAs, you can read our guide here: https://www.uswitch.com/savings-accounts/investment-isas/

Can I transfer my Cash ISA?

Sometimes you might want to move your Cash ISA money if you feel that your current provider isn't offering a competitive rate of interest.

If you want to change providers you can ask your new ISA provider to arrange the transfer for you. Don’t just close down your existing ISA account because you will lose the tax-free allowances you have accumulated over previous tax years.

Check before you make a transfer – some providers don't allow it, or levy a penalty if you want to transfer out. You can find out whether it's worth moving your money by comparing the cost of transferring out with the benefit of receiving a higher interest rate.

If you want to move money from a Stocks & Shares ISA into a Cash ISA, or vice versa, you're allowed to do that. Just make sure you don’t close down any of your accounts or you will lose the tax benefits.

Is the money in my Cash ISA safe?

So long as you choose a provider who is authorised by the UK watchdog and protected by the UK Financial Services Compensation Scheme (FSCS) then your money will be protected, up to a certain limit.

The protected amount per account is £85,000. Check whether your provider is part of a larger banking group, because the protection only applies to the overall banking group, and not the subsidiary company.

Is it a good idea to open a cash ISA?

In recent years, Cash ISAs have become less popular because the Personal Savings Allowance has meant many people don’t pay any tax on their savings interest at all.

However, tax allowances can change, and if the PSA were to be reduced or disappear, that might affect savers with larger balances. Any money held in a Cash ISA would still be protected against tax and wouldn't be taxed retrospectively.

Also in the future you might want to transfer your Cash ISA into a Stocks & Shares ISA, and you would be able to do this while keeping all your gains and interest tax-free. Whilst also making the most of the tax-free allowance you have accumulated.

Where do I get a cash ISA?

Many banks, building societies and other financial services companies offer ISAs, and you can use our comparison tables to see which companies are currently offering the best rates.

Like savings accounts, there's no charge to set up a Cash ISA, and no fee for holding your money in the account.

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.