Cash ISA vs ordinary savings account — which is better in 2026/27?
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In short. A Cash ISA pays interest tax-free up to the £20,000 annual allowance. An ordinary savings account is taxable, but the first £1,000 of interest (£500 for higher-rate, £0 for additional-rate) is covered by the Personal Savings Allowance.
Both hold cash with a UK bank or building society and earn interest. The difference is how the interest is taxed and whether the wrapper limits how much you can pay in each year. Which is better depends on your tax band and how much interest you expect to earn.
Last reviewed:
Side by side
Tax on interest
Cash ISA
None — tax-free forever inside the ISA
Ordinary savings account
Taxable, but covered by the Personal Savings Allowance (PSA): £1,000 basic-rate, £500 higher-rate, £0 additional-rate
Annual paying-in limit
Cash ISA
£20,000 (shared across all your ISAs)
Ordinary savings account
No limit
Withdrawals
Cash ISA
Allowed; some Cash ISAs are 'flexible' so you can replace withdrawals in the same tax year without using new allowance
Ordinary savings account
Allowed (subject to product terms)
FSCS cover
Cash ISA
£85,000 per banking licence
Ordinary savings account
£85,000 per banking licence
Headline rates
Cash ISA
Often slightly lower than equivalent non-ISA accounts
Ordinary savings account
Often slightly higher than the equivalent Cash ISA
Best for
Cash ISA
Anyone whose PSA is already used up, or who expects to be in future
Ordinary savings account
Anyone with little or no interest income whose PSA isn't yet a constraint
When Cash ISA usually wins
- You pay tax at higher or additional rate and earn meaningful interest
- You expect rates and your balance to push you over the PSA in future
- You want to lock in a tax shelter you can keep building year after year
- You want one wrapper that can later move into a Stocks & Shares ISA tax-free
When Ordinary savings account usually wins
- You're a basic-rate taxpayer with under £1,000 of expected interest this year
- The non-ISA rate is materially higher and your PSA covers the interest
- You've already used this year's £20,000 ISA allowance
- You want a regular-saver or notice product that isn't offered as an ISA
Related quick answers
FAQ
- Does paying into a Cash ISA use up my Personal Savings Allowance?
- No. Interest inside an ISA does not count towards the Personal Savings Allowance — it's outside the tax system entirely.
- Can I move money from a savings account into a Cash ISA later?
- Yes, but the new money still counts towards your £20,000 annual ISA allowance. Only transfers between existing ISAs preserve the original allowance.
- What is a flexible Cash ISA?
- A flexible Cash ISA lets you withdraw money and replace it within the same tax year without using up any new allowance. Not all Cash ISAs are flexible — check the terms before opening.