What is a Cash ISA?
A Cash ISA is a type of savings account that allows you to earn interest free from UK income tax. Here we explain how Cash ISAs work and how to decide if a Cash ISA is right for you.
This article gives you information to help you make the most of your money, but it isn’t personal advice. If you’re not sure if a certain action is right for you, please ask for advice.
Last Updated: 21 April 2023
Important information - The information on this page is to help you make your own decisions and is not personal advice. Inflation reduces the future spending power of money. Tax rules can change and their benefits depend on your personal circumstances.
Cash ISAs - The Basics
A Cash ISA (Individual Savings Account) is a type of savings account that allows you to earn interest free of UK income tax.
- You can put up to £20,000 into a Cash ISA each tax year. This is called the ISA allowance, and is the maximum amount you can pay in across all your ISAs each tax year (which runs from 6 April to 5 April).
- Each tax year you can only pay into one Cash ISA – but you may have multiple Cash ISAs open from previous tax years.
How do Cash ISAs work?
A Cash ISA works like a savings account or high interest current account, offering a rate of interest to save your cash with them. These providers can offer fixed or variable rates, as well as different levels of access to your savings. Usually, the longer you commit to savings for, the higher the rate and the more restricted the access.
As a saver, perhaps the biggest difference between ISAs and savings accounts is all interest earned in ISAs are free from UK income tax.
What’s the difference between Cash ISAs and other types of ISA?
In a Cash ISA, your money is kept as cash and pays a certain rate of interest. This means Cash ISAs are generally a lower risk option in comparison to other types of ISA such as a Stocks and Shares ISA where your money can be invested. This is because the value of investments can rise and fall and you may not get back what you invest.
Low risk can also mean lower returns, so it’s important to consider that inflation reduces the spending power of your money.
What is the ISA allowance?You can put up to £20,000 into a Cash ISA each year and earn tax-free interest.
This is called the ISA allowance.
You're free to split your ISA allowance any way you like across a Cash ISA, Stocks and Shares ISA, Lifetime ISA (maximum of £4,000) and an Innovative Finance ISA - as long as you stay within the overall £20,000 limit.
For example, you could pay £4,000 into a Innovative Finance ISA, £4,000 into a Stocks and Shares ISA, and £12,000 into a Cash ISA in any one tax year.
The tax year runs from 6 April to 5 April, and the deadline for adding money is 5 April.Learn more about isa allowance
Balancing your Cash ISA and saving allowance
For non-ISA savings, interest could be subject to tax. The amount of tax you pay on your interest depends on your total income in the tax year and any allowances you have on your savings.
What is the Personal Savings Allowance and starting rate?
Your Personal Savings Allowance (PSA) is the total amount of interest you can earn across your savings accounts, which doesn’t fall into your Personal Allowance or your starting rate for savings (if applicable), without paying tax. The amount of interest you can earn without paying tax depends on your tax band.
Basic-rate taxpayers get their first £1,000 of savings interest tax-free. Higher-rate taxpayers have an allowance of £500 each year and additional-rate taxpayers will pay tax on all their interest.
If your other income is less than £17,570 you may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings. Every £1 of non-savings, non-dividend income above your Personal Allowance reduces your starting rate for savings by £1.
A Cash ISA can help you continue to earn tax-free interest on your savings without going over your Personal Allowance, starting rate for savings (if applicable) and Personal Savings Allowance.
Please note, the PSA for Scottish taxpayers is based on the rest of the UK tax bands.
How many Cash ISAs can I have?
While you can have more than one Cash ISA, you can only pay into one of each type of ISA each tax year. Regardless of whether they were opened in different years or with different providers. Put another way, you can’t pay into two of the same type of ISA in the same tax year.
Are Cash ISAs safe?
Cash you put into savings products, including a Cash ISA, which are provided by an authorised bank or building society is protected by the Financial Services Compensation Scheme (FSCS).
The FSCS savings protection limit is currently up to £85,000 per eligible person, per bank, building society or credit union. Any deposits over £85,000 with the same bank licence are not likely to be covered.
Is a Cash ISA right for me?
People save for different reasons, and the right saving method for you will depend on your goals.
If you’re saving for a specific goal within the next few years, keeping your money in a Cash ISA earning a secure level of interest could be a good option.
If you have money you’re not planning to spend in the next five years, a Stocks and Shares ISA could be an option to consider if you are happy with the risks of investing. By investing your money for periods over 5 years, any ebbs and flows in the market will often out-perform cash but of course there are no guarantees.
How to open a Cash ISA with HL
With HL, opening an account takes less than 10 minutes.
Thanks to our innovative Active Savings platform, you can easily move between savings accounts, taking advantage of the competitive rates from a single online hub. Compare savings products from our banking partners, add and withdraw money, view your cash balance and more - all in one easy-to-manage online account.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 212214).