Cash ISAs explained (2026/27): how they work

What is a cash ISA?

ISA stands for Individual Savings Account. A cash ISA works like a normal savings account, but you don't pay tax on the interest and you don't need to declare it to HMRC. To open one, you need to be 18 or over and live in the UK.

How much can you save?

Everyone has a yearly ISA allowance. In the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, the allowance is £20,000. You can split it across different types of ISA:

cash ISAs
stocks and shares ISAs
innovative finance ISAs
Lifetime ISAs, where you can pay in up to £4,000 a year.

The allowance resets each April. Any allowance you don't use is lost, because it doesn't carry over to the next year. Money already in your ISA stays tax-free.

A change coming in April 2027

From April 2027, the most that people under 65 can put into cash ISAs each year is due to fall to £12,000. The overall ISA allowance is due to stay at £20,000, so you'd still be able to put the rest into a stocks and shares ISA. If you're planning your savings, check the latest rules on GOV.UK before the new tax year starts.

Types of cash ISA

Easy access: you can take money out at any time. The interest rate can change.
Fixed rate: you lock your money away for a set time, often one to five years, in return for a fixed rate. Taking money out early usually means paying a penalty.
Notice: you must give notice, such as 90 days, before you take money out.

Some cash ISAs are flexible. This means you can take money out and put it back in the same tax year without using up more of your allowance. Check with your provider, because not all ISAs offer this.

Do you need a cash ISA?

Not always. Thanks to the Personal Savings Allowance, basic-rate taxpayers can earn up to £1,000 of interest a year tax-free in ordinary savings accounts. Higher-rate taxpayers can earn up to £500. For example, £10,000 earning 4% a year produces £400 of interest, which is within a basic-rate taxpayer's allowance.

A cash ISA becomes more useful as your savings grow, if interest rates rise or if you pay a higher rate of tax. Interest earned inside an ISA also stays tax-free year after year. Whichever you choose, compare interest rates, because an ordinary account sometimes pays more.

Moving a cash ISA

If you find a better rate elsewhere, use the new provider's ISA transfer service. Don't withdraw the money yourself, because unless your ISA is flexible, it would lose its tax-free status and use up allowance when you pay it back in.

Is your money protected?

Cash ISAs with UK-authorised banks and building societies are covered by the FSCS, up to £120,000 per person, per institution.

Common questions

Can I have more than one cash ISA?

Yes. You can open and pay into more than one cash ISA in the same tax year, as long as your total ISA payments stay within your allowance.

What happens to my ISA after 5 April?

Your money stays in the ISA and remains tax-free. You simply get a new allowance for the new tax year.

Should I choose a cash ISA or a stocks and shares ISA?

It depends on when you'll need the money. Cash is better for short-term savings and emergencies. Investing is generally better suited to money you won't need for at least five years. Read our guide to stocks and shares ISAs to compare.

Sources

We checked this guide against these sources on 8 October 2026. Rules and allowances can change, so always check the latest position on GOV.UK.

This guide is general information, not personal financial advice. Read our full disclaimer.