Tax-free savings: are cash ISAs still worth it in 2026?

Are cash ISAs worth it? At a glance

• What do I need to know? Changes in inflation, interest rates, and ISA allowances could impact your returns from a cash ISA in 2026.
• What does it mean for me? It’s important to consider whether you could earn more by consolidating your cash in a traditional savings account or setting money aside in a cash ISA to earn tax-free interest.
• Why does it matter? Cash ISAs can diversify your financial portfolio and offer tax-free earnings, but your money can lose purchasing power if your interest rate doesn’t outpace inflation.

As many as 40% of UK adults use cash ISAs (Individual Savings Accounts) as part of their savings strategy.

Additional rate taxpayers receive no Personal Savings Allowance (PSA). So, ISAs provide a convenient way to earn tax-free savings on large sums, especially for higher earners.

But with fluctuating interest and inflation rates, alongside the possibility of an allowance cut in the new tax year, is your money better off growing elsewhere?

In this guide, you’ll learn about the benefits and drawbacks of cash ISAs in advance of the changes set to take place in 2026.

How do cash ISAs work?

Cash ISAs work similarly to savings accounts. You earn interest on your savings, and the amount you earn is usually determined by the level of access to your cash.

If the cash ISA is held with an institution regulated by the Prudential Regulation Authority (PRA), it will usually be eligible for FSCS (Financial Services Compensation Scheme) protection.

You can either choose instant access if you want to keep your money on hand, or fixed-rate accounts that lock your cash away for a time, usually in return for higher earnings.

It’s important to keep in mind that interest rates for cash ISAs can be lower than other types of savings account.

The main benefit of cash ISAs is the potential to earn interest tax-free. Every taxpayer in the UK is entitled to a maximum ISA contribution of £20,000 per year. This limit is set to decrease in April 2026 in an effort to encourage savers to invest more in stocks and shares ISAs. 

Flagstone research finds that UK adults are almost twice as likely to have a cash ISA than a stocks and shares ISA. According to a recent survey, 70% of cash ISA users feel the pressure to encourage them to take risks with their cash is unfair.

Simon Merchant, Flagstone CEO, comments:

‘Savers deserve protection from their government - not pressure to take risks or make financial decisions they don’t fully understand or feel comfortable with.’ 

‘If we want to shake people out of the inertia that persists around their personal finances, let's do it in such a way that promotes safe, guaranteed value creation.’ 

What are the pros and cons of cash ISAs?

To help you decide whether a cash ISA is right for you, it’s worth considering the benefits and drawbacks.

Are cash ISAs still worth it after the budget in 2026?

The next scheduled budget will be announced on 26 November 2025.

Financial services firm Bishop Fleming speculates that inflation may fall from 3.8% to 2.5% in 2026, while the cash ISA allowance could be reduced from the current £20,000 to £10,000, or even as little as £4,000.

These factors are worth considering before opening a cash ISA.

Should you wait to get a fixed-rate cash ISA?

While interest rates are low, it can be practical to wait for better rates before opening a cash ISA, so you don’t miss out on increased earnings.

But acting now means you could start earning tax-free interest sooner and can take advantage of the £20,000 allowance before it’s potentially reduced.

Whether or not a fixed-rate ISA is right for you depends on how long you’re willing to wait, balanced with how much you anticipate rates to rise. Interest rates are expected to drop further in 2026 according to a survey conducted by the Bank of England.

The final decision rests with the Bank of England's Monetary Policy Committee (MPC), and forecasts can change due to unpredictable factors.

Consider speaking with a Financial Adviser if you’re unsure which options are best for you. They can advise you based on your personal circumstances.

Are cash ISAs safe?

Unlike stocks and shares ISAs, cash ISAs are generally considered low-risk accounts. This is because with stocks and shares ISAs, you’re investing your money in businesses to earn a return, not just earning interest on a balance. As with any investment, you risk losing the money you put in.

Cash ISAs offer a safe way to grow your savings tax-free. Provided the financial institution offering the ISA has FSCS protection.

This means that if the bank holding your deposit goes out of business, you’ll be reimbursed up to a limit of £85,000 per person, per institution.

How much should I keep in a cash ISA?

The amount you should keep in a cash ISA will depend on your individual circumstances, and the potential interest you could earn from other types of bank accounts.

Cash ISAs don’t always offer the highest interest rates compared with other savings accounts. The main value of ISAs comes in the tax-free earnings you can build, especially when built up over many years.

If you use your full ISA allowance each year, you can steadily grow your wealth through tax-free compound interest. Either by depositing the full £20,000 into a single cash ISA or spreading your allowance across multiple accounts to balance access and higher, fixed-rate earnings.

Is a cash ISA worth it in 2026?

Cash ISAs can provide relatively low-risk, tax-free returns that can diversify your financial portfolio.

With annual tax-free interest earnings, cash ISAs can still play a role in preserving and growing your wealth as part of a balanced portfolio. Especially if you have significant cash deposits, currently earning low-to-no interest in current accounts.

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