New to this? Have a read of What is interest? first. It covers the basics from scratch in a few minutes.
The short version
| Cash ISA | Ordinary savings account | |
|---|---|---|
| Tax on interest | None, ever | None up to your Personal Savings Allowance, then taxed at your rate |
| How much you can pay in | Up to £20,000 a year across all your ISAs (2026/27) | No limit |
| Who can open one | UK residents aged 18 or over | Varies from account to account |
| Protection | Up to £120,000 per person, per bank or building society, under the FSCS | |
How much interest is tax-free outside an ISA?
Thanks to the Personal Savings Allowance, most people don't pay tax on savings interest at all. How much you can earn tax-free depends on your Income Tax band:
- Basic rate: £1,000 of interest a year
- Higher rate: £500
- Additional rate: nothing
If your other income is low, you may get up to £5,000 more through the starting rate for savings. It's available if your other income is under £17,570, and it shrinks by £1 for every £1 of other income above your £12,570 Personal Allowance.
Two worked examples
A basic-rate taxpayer with £10,000 saved at 4% earns £400 a year. That's well inside their £1,000 allowance, so there's no tax whether it's in a cash ISA or not.
A higher-rate taxpayer with £20,000 saved at 4% earns £800. That's £300 over their £500 allowance, so they'd pay £120 tax on it in an ordinary account. In a cash ISA, they'd pay nothing.
So a cash ISA tends to make more of a difference as your savings grow, if interest rates rise, or once your salary takes you into the higher-rate band.
Changes due in April 2027
- Savings tax goes up. From 6 April 2027, tax on interest above your allowance is due to rise to 22% for basic-rate taxpayers, 42% for higher-rate and 47% for additional-rate. The allowances themselves aren't changing.
- The cash ISA limit comes down. If you're under 65, the most you can put into cash ISAs each year is due to drop to £12,000. The overall ISA allowance stays at £20,000.
How to compare them
- Compare rates after tax. Cash ISAs sometimes pay a little less. If you're well inside your allowance, the higher rate may simply be the better deal.
- Check how you can get your money. Easy access, notice and fixed-rate accounts exist in both, and fixed rates usually charge you to take money out early.
- Watch the protection limit. The £120,000 FSCS limit covers everything you hold with one banking licence, ISA and savings together. Some brands share a licence.
Whichever you choose, keep your safety net in an account you can get at quickly.
Common questions
Do I have to tell HMRC about savings interest?
Not usually. Banks tell HMRC how much interest you've earned. If it's over your allowance, HMRC normally collects the tax by changing your tax code. If you fill in a Self Assessment tax return, you include it there.
Does a cash ISA use up my Personal Savings Allowance?
No. ISA interest is tax-free on top of your allowance, so you can use both.
Can I have a cash ISA and a savings account?
Yes, and plenty of people do. Many keep everyday savings in one and longer-term savings in the other.
Sources
We checked this guide against these sources on 13 October 2026. Rules and allowances can change, so check the latest position before you act.
- GOV.UK: Tax on savings interest, how much is tax-free
- GOV.UK: Changes to tax rates for property, savings and dividend income
- GOV.UK: Reduction in the cash ISA limit from April 2027
- GOV.UK: Individual Savings Accounts
- Bank of England: FSCS deposit limit rises to £120,000
This guide is general information, not personal financial advice. Read our full disclaimer.