Cash ISA
A tax-free cash savings account for UK adults. All interest earned inside a Cash ISA is completely free of income tax, making it the simplest tax shelter available.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You open a Cash ISA with a bank or building society and deposit up to £20,000 per tax year. The interest you earn is completely tax-free. You can withdraw money at any time. Your ISA allowance resets every 6 April.
Tax Treatment
Interest earned is entirely free of UK income tax. Does not count towards the Personal Savings Allowance.
Tax Advantages
- All interest is free of income tax regardless of your tax band
- Does not use your Personal Savings Allowance
- No need to declare ISA interest on your tax return
Who Is This Suitable For?
Anyone who wants a low-risk, tax-free home for cash savings, with deposits protected by the FSCS up to the scheme limit. Particularly useful for higher rate taxpayers.
Worked Example: Two years of Cash ISA saving at an assumed 4%
- 1On 6 April you deposit the full £20,000 allowance into a Cash ISA paying an assumed 4%.
- 2Year one interest: £20,000 × 4% = £800, paid with no tax deducted.
- 3The following 6 April (2027) the cash ISA limit for under-65s is due to fall to £12,000, so you add £12,000, taking the balance to £32,800.
- 4Year two interest: £32,800 × 4% = £1,312, again tax-free.
Result: £2,112 of interest over two years with nothing to declare, and your Personal Savings Allowance stays free for interest earned elsewhere.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Capital cannot fall in value, and deposits are FSCS-protected up to the scheme limit.
- Interest stays tax-free for as long as the money remains inside the wrapper.
- Old balances can be transferred to a better rate without using any allowance.
Drawbacks
- From 6 April 2027 the cash ISA limit for under-65s is due to fall to £12,000, although the overall £20,000 ISA limit stays.
- Cash loses buying power to inflation over long periods, so this suits money you will spend within a few years.
- Withdrawing from a non-flexible ISA and paying it back counts as a fresh subscription against this year's limit.
Notes for Limited Company Owners
A Cash ISA is funded from money already taken out of the company as salary or dividends; the company itself cannot hold one. Directors who keep a personal cash buffer against irregular dividend income often use it for that reserve, since the interest would otherwise be taxable on top of their dividends.
Common Mistakes
- Closing an old ISA and moving the cash yourself instead of asking the new provider to arrange a transfer, which forfeits the tax-free status for good.
- Leaving a matured fixed-rate ISA on the provider's low default rate for years.
- Assuming a basic-rate taxpayer with modest savings gains anything, when the Personal Savings Allowance may already cover all their interest.
Who Should Avoid It
Anyone whose savings interest already falls within their Personal Savings Allowance gains little and may find a better ordinary rate; it is also the wrong home for money not needed for a decade or more.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
Can I have more than one Cash ISA?
Yes, since April 2024 you can open multiple ISAs of the same type, as long as total contributions across all ISAs do not exceed £20,000.
What happens to my ISA if I die?
Your spouse or civil partner can inherit an additional ISA allowance equal to the value of your ISA through the Additional Permitted Subscription (APS) rules.
Can I transfer my Cash ISA to a Stocks & Shares ISA?
Yes, you can transfer between ISA types without it counting towards your annual allowance. The transfer must be done through the new provider.