The deposit for your first home, your dream car, a year of travelling… whatever it is, we all have that one ‘big’ thing we’re saving for — even if it is an emergency fund just in case anything goes wrong.
And if you’re not using a savings account to help you hit your goal, then you could be missing out on valuable growth from interest.
When it comes to building your wealth, there are various types of savings accounts to choose from — including Cash ISAs (which, spoiler alert, will allow you to earn interest in a tax-free way).
But that doesn’t mean that traditional savings accounts don’t have their benefits too.
So, when it comes to the debate of Cash ISAs vs savings accounts, here’s everything you need to know before choosing where to grow your money.
- What exactly is a Cash ISA?
- What is a savings account?
- Differences between the two
- Tax considerations
- Which is best for me?
What is a Cash ISA?
A Cash ISA is a type of Individual Savings Account (that’s what ‘ISA’ stands for) that’s available for UK tax residents.
And if you’re unfamiliar with ISAs, these give you a way to save and/or invest up a certain amount per year without being taxed on any gains you make — like profits from investments, or interest on cash savings.
So, a Cash ISA is basically a savings account that allows you to earn tax-free interest. For the 2025/26 tax year, your ISA Allowance is £20,000, and this can be spread across all the ISAs you have (but we’ll talk more about how this all works later).
Keep reading to find out more about how these compare to ordinary savings accounts below, or check out our Cash ISA guide if you’d like a more in-depth explanation of how they work.
Cash ISA benefits
Cash ISAs work in a similar way to traditional savings accounts, with both paying you interest based on the amount you have tucked away in them. A stack of coins with a pound sign AI-generated content may be incorrect.
As mentioned above, the key benefit of Cash ISAs is that you won’t pay capital gains or income tax on this interest (if you don’t put in more than your annual ISA Allowance). So, this will be a key factor when it comes to deciding whether to opt for an ISA or savings account you may find with the high street banks.
And if you plan to save a substantial amount (up to £20,000) and have some of your ISA allowance left to use this tax year, then it probably seems like a no-brainer when it comes to which you’d choose.
But just as savings accounts vary between retail banks, Cash ISAs aren’t all built exactly the same either, as things like rates of interest, minimum deposit amounts, and withdrawal limits differ from provider to provider.
Here are some other benefits of Cash ISAs (depending on which one you go for):
- Competitive interest rates: you could secure a higher rate if you pay a certain amount into the account each month, or commit to keeping your money in for a specified period.
- No fees: some providers won’t charge you any fees at all, while others will in exchange for a better interest rate, or to do things like withdraw and transfer.
- Easy access to your money: if you want the flexibility to withdraw your savings whenever you need to, then look for an easy or instant access Cash ISA (and this may be better suited to emergency funds).
- Low minimum deposits: though your yearly ISA Allowance is £20,000, providers won’t all have the same minimum amounts needed to open an account with them.
With the Wealthify Cash ISA, you’ll get a variable interest rate (which tracks the Bank of England’s base rate, minus a margin to help it remain competitive), as well as zero fees, and quick and easy access to your money whenever you need it.
You can also open one with a low minimum deposit, and there are no upper limits on how much you can pay in (and earn that oh-so-valuable interest on).
What is a savings account?
Like Cash ISAs, savings accounts give you a place to grow your savings by earning interest. There are similar options available for both types of accounts, with some offering easy access to your money whenever you want to withdraw, and others requiring you to keep it locked away for a specified amount of time before you can touch it. Here’s how the different types of savings accounts work:
- Regular savings accounts: as the name suggests, these encourage you to save regularly, with most requiring you to pay a certain amount in each month. These tend to pay interest yearly and offer a higher rate than other savings accounts, though may have limits on how often you can withdraw or how much you can have in the account.
- Easy access savings accounts: again, the clue is in the name as these won’t have limits on when you can withdraw, giving you quick and easy access to your money whenever you need it, and often without penalty. Just FYI, you may also see this called an instant access savings account.
However, when it comes to a Cash ISA or savings account, the key difference is that the latter isn’t tax-free. This is because interest generated from your savings is classed as ‘income’ — just like the salary you earn from your job, or the profits you make from investments.
Benefits of savings accounts
Savings account benefits are pretty much the same as Cash ISAs, aside from the fact that your annual ISA Allowance doesn’t apply to them, of course.
So, why would you choose one over a Cash ISA?
Well, they can be a good option to consider if you’ve maxed out your ISA Allowance for the current tax year but still want to continue earning interest on your savings.
So, instead of it being a debate of Cash ISA vs savings account, you could use both to tuck money away for those big purchases you dream of, or to simply grow your wealth over time.
With Wealthify’s Instant Access Savings Account, you’ll benefit from a variable interest rate, quick and easy access to your money whenever you need to withdraw, zero fees, and no upper limits on how much you can save.
Differences between Cash ISAs and savings accounts
As explained, Cash ISAs are entirely tax-free, and you’ll be taxed if you go over your Personal Savings Allowance with a traditional savings account.
Another difference between them is that you need to be a UK tax resident to use ISAs, while some banks, building societies, and financial service providers do offer savings accounts for those who fall outside of this (like those living in the Channel Islands or the Isle of Man).
However, do keep in mind that Wealthify’s Cash ISA and Instant Access Savings Account are only available for UK tax residents.
There are a variety of different Cash ISAs and standard savings accounts on the market, all with various interest rates, withdrawal rules, and limits on how much you need to put in and how often.
Savings account tax considerations
There are a few things that impact how much tax you pay on interest gained outside of Cash ISAs:
- Your Personal Tax Allowance: you can currently earn up to £12,570 per year tax-free, with this including your income, profits from any investments you hold, and interest you gain from your cash savings.
- Your ‘starting rate’ for savings: if you earn £17,570 or less a year, you can generate up to £5,000 in interest without being taxed — with your rate being reduced by £1, for every £1 you get in other income above your Personal Tax Allowance.
- Your Personal Savings Allowance: if you’re a basic rate taxpayer, you can earn £1,000 in interest each year without paying tax on it. Though this limit drops to £500 if you’re a higher rate taxpayer and is £0 if you earn over £125,140.
If you have a lot saved and choose a savings account with a high interest rate, then the amount of tax you need to pay could add-up fast. So, if you have some of your ISA Allowance left to use before April 5th, why not consider putting your money in a Cash ISA?
Cash ISA limits
It’s important to remember that you can’t just pay as much as you want into a Cash ISA each year and earn unlimited tax-free interest.
For the current tax year ({{TaxYear}}), your ISA Allowance is {{TaxAllowance}}, and you have until 6th April every year to use it (or lose it). This is because any remaining allowance won’t be carried over to the next tax year, and the amount could change each year, too.
If you’ve used up your annual ISA Allowance but still want to earn interest on more of your money, this is where savings accounts come in handy.
How many Cash ISAs can I have?
Some people will be happy with one Cash ISA, though you may want multiple depending on what you’re tucking the money away for.
For example, you may be willing to keep some locked away for longer in an account that pays you a higher rate of interest, but also have an easy access account with a lower rate so you can quickly withdraw if needed (like dipping into your emergency fund if the boiler suddenly breaks!).
Well, the good news is that you can open and pay into as many Cash ISAs as you want during each tax year (though you will need to ensure your ISAs combined value doesn’t go over your ISA Allowance in each tax year).
You could also choose to put some of your allowance into a Cash ISA, and the rest in another type of ISA (for more information on these, read our guide on how many ISAs you can have).
So, during this tax year you could pay £3,000 into a Stocks and Shares ISA, and £5,000 into a Cash ISA, for example — leaving you with £12,000 of your allowance left. Or you could put £10,000 in a Cash ISA with one provider, and £5,000 in a Cash ISA with another.
And if you already have a Cash ISA and want to move to a different provider, there is the option to transfer it instead of simply opening another one (but do check if your current provider will charge you a penalty for doing so).
With Wealthify, we won’t hit you with fees if you want to transfer an ISA in or out.
Can you withdraw from a Cash ISA?
The short answer is yes, you can! Though some providers will have:
- fees for withdrawals,
- limits on how often you can withdraw,
- and a minimum period you’ll need to keep the money in the account before withdrawing (though we’re happy to say that none of these apply to ours).
Some providers (like Wealthify) will also offer something called a ‘Flexible Cash ISA’.
This means that if you withdraw, you can pay the money back into the account without using more of your ISA Allowance — but only if you do this within the same tax year (which starts on 6th April and ends on the following 5th April).
Cash ISA or savings account: which is best for me?
When it comes to choosing to open a Cash ISA or savings account, both products can offer easy ways to grow your savings — but if you are entitled to an ISA Allowance, then you’ll probably want to take advantage of the tax-free interest you can earn!
If you have used up your allowance for the tax year already, you could always open a standard savings account and take advantage of your other tax-free allowances for savings.
At the end of the day, there are various types of Cash ISAs and regular savings accounts available on the market, each with their own benefits and drawbacks. And factors like how much you need to put in or whether you get instant access to your money could be dealbreakers for you.
And if you can’t decide which one to go for, why not open one of each?
Our Cash ISA and Instant Access Savings Accounts both offer a variable interest rate, easy access to your money whenever you need it, zero fees, and no upper limit on how much you can put in — meaning that big purchase may be closer than it seems.
Our Cash ISA and Instant Access Savings Account are powered by ClearBank.
Wealthify does not provide advice.
ISA rules apply. Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
With investing (such as through a Stocks and Shares ISA) your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Resources:
https://www.moneyhelper.org.uk/en/savings/types-of-savings/cash-isas
https://www.gov.uk/apply-tax-free-interest-on-savings
https://www.moneyhelper.org.uk/en/savings/types-of-savings/regular-savings-accounts
