Cash ISAs vs. savings accounts: which is right for you?

Cash ISAs vs. savings accounts: at a glance

• What do I need to know? Cash ISAs (Individual Savings Accounts) and savings accounts can each offer high interest rates, but ISA earnings are tax-free.
• What does it mean for me? Opening a mix of Cash ISAs and savings accounts can increase your flexibility, offering more control over your money as it grows.
• Why does it matter? Spreading your money between different accounts can maximise your returns while minimising your tax bill.

Over two million new cash ISAs were opened during the 2023/24 tax year. And while these accounts have long proven to be the most popular type of ISA, they have recently driven broader ISA growth in the UK.

Savers contributing to Cash ISAs can take advantage of tax-free interest without the risks or limitations associated with other types of ISAs. But cash ISAs are still bound by the current £20,000 annual contribution limit, even if the rules will change in 2027.

So, where is the best place to save your money to balance access, interest rates, and protection?

In this guide, you’ll learn about the similarities and differences between Cash ISAs and savings accounts, and how you can benefit from both.

What’s the difference between a savings account vs. a Cash ISA?

Cash ISAs and savings accounts both let you deposit money in exchange for predictable interest.

But they differ due to their respective limitations.

ISAs

Interest earned in Cash ISAs is tax-free, making it a relatively reliable way to maximise your money, especially as a higher earner.

And while there’s an annual contribution limit for ISAs, the limit resets every tax year. This means you can top up your accounts annually, steadily building your tax-free earnings through compound interest.

Savings accounts

There’s no legal deposit limit on savings accounts, and you can also benefit from compound interest. But HRMC charges you on interest earned in savings accounts, especially as an additional rate taxpayer.

You may also have minimum or maximum deposit amounts to consider, depending on the terms and conditions of the savings account you want to open.

FSCS protection

Most Cash ISAs are protected by the Financial Services Compensation Scheme (FSCS). As of 01 December 2025, this protects your cash deposits up to £120,000.

Provided the financial institution holding your money is regulated by the Prudential Regulation Authority (PRA), deposits in savings accounts should also benefit from FSCS protection.

You can compare the key features of Cash ISAs and savings accounts below:

Are cash ISAs worth adding to your cash portfolio in 2026?

In the 2025 Autumn budget, Chancellor Rachel Reeves announced a reduction in Cash ISA allowances for savers under 65. Flagstone CEO, Simon Merchant, called this ‘a blow to savers’.

The good news is that the updated rule only comes into effect in 2027. This means savers have until that tax year begins on 06 April 2027 to make use of the £20,000 limit. 

Despite the reduction in the allowance, ISAs still remain one of the only ways to maximise your tax-free savings as a higher earner. And unlike with Stocks and Shares ISAs, you don’t risk losing money due to underperforming investments.

Cash ISAs can sometimes have lower interest rates than savings accounts. So, there is a risk that your earnings may not keep pace with inflation, which could see your cash lose its purchasing power over time.

Are savings accounts worth it?

Savings accounts can help you grow your wealth, often with predictable interest. This is unlike holding your cash in a current account, where it will typically earn little to no money.

These accounts are also relatively low-risk compared with other investments, where you can lose the money you pay in. But there are tax considerations with building significant cash savings, which can limit your earnings.

Is it better to have a Cash ISA or a savings account?

You’re not limited to just one type of account. And nurturing a balanced portfolio that includes both ISAs and savings accounts can help you maximise your cash earnings.

Holding cash in savings accounts can be a profitable way of growing your money after you’ve reached your ISA limit each year. You can then increase the savings in your Cash ISA once the allowance resets the following year to gradually expand your tax-free interest.

You can also get full FSCS protection by spreading your money between different qualifying accounts. This is especially useful if you have large deposits, ensuring you’ll get reimbursed if the regulated banks holding your money go out of business.

Frequently asked questions about Cash ISAs and savings accounts

Can I have both an ISA and a savings account?

Yes. Once you’ve reached your ISA limit for the current tax year, you can continue to grow your leftover cash in savings accounts with high interest.

What other types of ISAs are available?

You can use your full £20,000 annual ISA allowance in one Cash ISA, or spread your allowance across multiple accounts.

Different types of ISAs can offer unique benefits depending on your financial goals:

• Stocks and Shares ISAs: allow you to invest in the stock market and make tax-free profits.
• Lifetime ISAs (LISAs): help you save for retirement with government bonuses.
• Junior ISAs (JISAs): let you gift money to young children without paying tax. 
• Innovative Finance ISAs (IFISAs): connect you with borrowers, letting you earn interest on what you lend them.

Balancing growth and protection with Cash ISAs and savings accounts

You don’t need to choose between a Cash ISA and a savings account.

In fact, spreading your cash between both products as part of a balanced portfolio can let you optimise tax-free growth, maximise protection, and maintain access for when you need it. 

Cash ISAs and savings accounts can work together to grow your cash and protect your purchasing power.

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