What is a cash ISA?

Written by
Fact checked by
Adam N.
Apr 2024

Cash ISAs are one type of Individual Savings Account (ISA) which are essentially tax-free savings accounts where you do not have to pay tax on the interest you earn. You have to be over 16 years and a UK resident to be able to open a cash ISA. Essentially, it helps protect your savings from the taxman, and depending on the type you choose, you can have easy access to your money without losing the benefits. 

Cash ISAs remain tax-free year after year, as long as you keep them on your investment account. Note that cash ISAs are low risk and low return: the interest you earn may be only a few percentage points above the rate of inflation. With the current low interest rates, the real value of your funds may actually go down if inflation is more than the rate your ISA pays.

In the 2021/2022 tax year, you can save up to £20,000 in one type of ISA, for example a cash ISA, or you can split the allowance across other types of ISAs. It is important to keep in mind that in one tax year you can only have one active cash ISA, meaning you can’t open several cash ISAs in the same tax year. However, you can start your cash ISA with as little as £1.

There are two types of cash ISAs: easy access and fixed rate. If you want to be able to tap into your savings during the year, you probably want to go for an easy-access cash ISA. The interest rates on these are lower, but you can take your money out without any penalty. Some providers might ask for a certain number of days notice to withdraw your money. In comparison, fixed-rate cash ISAs give you higher rates, but if you need to access your money quickly due to an unforeseen event or an emergency, you will pay a penalty. 

Some cash ISAs are flexible, meaning you can withdraw cash from them and put it back without affecting your annual ISA allowance. This means that if you had a £1,000 flexible cash ISA, and decided to withdraw £500, you could put it back in the same tax year without it affecting the overall, £20,000 limit you can invest in that year. If you had a non-flexible ISA, the £500 would reduce your annual ISA limit even if you returned the £500 to your account. 

Your cash ISAs are protected by the Financial Services Compensation Scheme (FSCS) for up to £85,000 if the UK regulator covers your provider. 

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Edith Balázs
Author of this article
I bring 20+ years of experience as a correspondent having worked for Bloomberg, Dow Jones and The Wall Street Journal covering macroeconomics, stock, currency and fixed-income markets. I hold a Master's degree in American Studies and Journalism.
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