Cash ISAs are a tax-free way of building up your savings. 

Each year you can put some of your income into a cash ISA and the interest you earn is completely tax free, irrespective of your income tax bracket and financial situation.

What is a cash ISA?

A cash ISA is very similar to an instant access savings bank account except you will never be taxed on the interest earned by your ISA. 

Over time, if you have a large amount saved in ISAs, you could generate a lot of tax-free income.

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Which type of cash ISA should you choose?

There are 2 main things to consider when picking a cash ISA: the interest rate, and how easy it is to withdraw your money when you need it. 

There are lots of ISA providers and accounts but the best cash ISA for you will depend on what you’re looking for in a savings account: do you need instant access to your money, for example, or are you happier keeping it locked away for longer?

Cash ISA comparison

To compare cash ISA interest rates, a comparison website can quickly show you the range of different accounts currently available.

  • Instant access means you can withdraw your money at any time

  • Easy access lets you withdraw at any time, but you might have to wait a few days for the cash to actually arrive in your bank account

  • Some cash ISAs have a notice period, meaning you have to notify the provider ahead of time that you want to withdraw your funds, otherwise you might be charged or penalised some of the interest

  • Regular saver means you have to deposit a certain amount of money every month to qualify for the interest rate

  • Many of the best cash ISA interest rates are fixed term deals; this means you put your money in, but then you can’t access it for the fixed term period, which is usually 1 to 5 years. (Some fixed rate cash ISAs will allow you to withdraw cash, but you will usually be smacked with a large interest penalty).

What is your personal savings allowance?

In 2016, the personal savings allowance (PSA), was introduced, which allows some people earn tax-free interest on savings that are not stored in an ISA.

In 2020/21, basic-rate taxpayers (20%), can earn up to £1,000 in interest on their savings without having to pay tax on it. 

Higher-rate (40% or 41% in Scotland) taxpayers do not pay tax on the first £500. Additional rate taxpayers (45%) get no personal savings allowance.

Your ISA allowance is completely separate from your PSA: everyone gets the full £20,000-per-year ISA allowance, irrespective of income tax brackets.

What is my cash ISA allowance?

In 2020/21, the annual ISA allowance or limit is £20,000. This can be spread across a cash ISA, stocks and shares ISA, innovative finance ISA, and lifetime ISA. 

The allowance resets every tax year (April 5) and any unused allowance from the previous year does not roll over.

Some ISAs have a minimum initial deposit, while others only need £1 or nothing at all. Many providers will also allow you to transfer an existing ISA into a cash ISA without using up any more of this year’s ISA allowance.

Can I have a cash ISA if I have bad credit?

Yes, you don’t need to pass a credit check to open a savings account.

Is my money safe in an ISA?

Yes, as long as your ISA provider is backed by the FSCS (financial services compensation scheme) which protects up to £85,000 of your money per banking group/building society/credit union.

Can you take your money out of an ISA and put it back in?

Some ISA providers will allow you to withdraw money and replace it within the same tax year without taking a second bite out of your £20,000 allowance. 

Depending on the details of your ISA, however, there may be significant charges and penalties for withdrawing cash.


How many cash ISAs can I have?

The number of cash ISAs you can hold is only limited by the number of years you have been investing in an ISA. You can only pay into one cash ISA per tax year, but you can start a new one every year.

Can I transfer my cash ISA?

Yes, ISAs are transferable products and many providers will accept transfers. This allows you to move your money to an account with a better rate, should yours no longer be competitive.

However, you will need to ensure that the cash ISA you want to switch to does accept transfers, as not all do. 

Once you have found a cash ISA you wish to transfer to, you’ll need to complete some straightforward paperwork and your bank will process the transfer on your behalf. 

Do not withdraw the funds yourself and try to pay it into the new ISA, or this money will lose its tax free status and will count as a new ISA subscription. 

Also, avoid transferring money out of a fixed rate cash ISA before the notice period as you are likely to be charged a penalty.

Can you get joint cash ISAs?

No. ISAs are ‘individual savings accounts’ intended for the exclusive use of one person.

Can I transfer my cash ISA to someone else?

No. The money in your ISA has been built up using your personal tax-free allowance, and this cannot be transferred to another person. 

If you wish to gift another person money you have saved in your cash ISA, you will need to withdraw it and transfer it to them directly.

What happens to the money in my ISA if I die?

Standard rules of inheritance apply to ISAs. 

So, if you’re married or in a civil partnership, they will inherit your ISA. 

If not, your ISA account will be closed, and any money it contains will form part of your estate.

Do I need a credit check to get a cash ISA?

No. ISAs are just an efficient vehicle for savings. Credit is not available through them, so no credit checks are required.

What happens if I exceed my annual ISA allowance?

In theory, your ISA provider should reject any deposit which will result in you exceeding your annual ISA allowance. 

If this does not happen, HMRC, which can track your annual ISA deposits via your National Insurance number, will alert you. 

Naturally, excess payments will not gain tax free status, and HMRC will confirm the steps you must take to remedy the situation.

27 January 2021