Cash ISA vs savings accounts: Which is better?

In normal savings accounts, you get taxed on whatever interest you earn (beyond your Personal Savings Allowance). A cash ISA, on the other hand, lets you keep 100% of the interest, which is why it has been a popular option among UK consumers for years. And after years of meagre interest rates, savings are back with a vengeance. In 2021 you’d have been hard pressed to earn enough interest from your savings to make an ISA a worthwhile prospect, but in 2025 they can once again provide a decent return.

So is an ISA worth it?

You can use our calculators to calculate tax for savings paid in this year or to calculate tax for a full year.

We think these are the most comprehensive and best cash ISA vs savings account calculators online. Have a go and judge for yourself! Please note, they assume that you pay income tax, and all calculations are estimates only.

Simple, full-year calculator

In the UK, savers have a “Personal Savings Allowance“, which is an amount of interest you can earn from savings without having to pay tax on it. For basic rate taxpayers that’s £1,000, while for higher rate taxpayers it’s £500. Additional rate taxpayers don’t get an allowance.

For reference, £12,500 in savings at at 4% would earn £500 of interest over a year. Above your Personal Savings Allowance, all interest earned is tax-deductable, unless it’s held in an ISA (assuming you’re already maxing out your income-tax-free personal allowance).

But deciding between a cash ISA or a standard savings account also comes down to the interest rates currently being offered on each type of product. Plus, even if an ISA might not save you money on tax this year, it can still be worth maxing out your ISA allowance as you can’t carry it over from one tax year to the next.

In our guide to savings accounts vs cash ISAs we take you through each type of account and their pros and cons, plus you can use our calculator to gauge any benefit in your own situation.

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What is a savings account?

As the name suggests, a savings account is a bank account that’s designed to hold your savings.

Unlike with a current account, you don’t get a debit card and you won’t be able to receive your salary in it or set up direct debits or standing orders. Instead, you can only withdraw or deposit money in it. In exchange for keeping your savings there, you’ll earn an interest rate.

What is a cash ISA?

A cash ISA is a savings account where you don’t pay tax on the interest you earn. Everything you can do with a normal savings account you can do with a cash ISA. The tax-free bit is the only real difference.

Any person aged 18 or over in the UK can put £20,000 into a cash ISA each tax year. Once your money is in a cash ISA, it stays tax-free year in year out.

Fixed savings accounts bring better returns

Those who can afford to lock away money for a year or longer can get a better rate. The obvious downside is that the money is locked away. Customers don’t have access to funds until the end of the committed term. Compare fixed-rate savings accounts here.

You can get both fixed rate savings accounts and fixed rate cash ISAs.

Current accounts can offer joining bonuses

Current accounts are the account you use for day to day personal finances. They can sometimes offer higher returns than ISAs and savings accounts.

Some current accounts pay interest on your balance up to a certain point, but it’s also important to take joining bonuses into account. Some banks will give new customers hundreds of pounds for switching over if they meet certain criteria (usually you have to earn over a certain amount). You can view the latest switch offers here.

Don’t rule out the ISA yet

While better rates can be found if you shop around, ISAs are still appealing to a lot of people. Here are a few reasons why:

1. Long term tax shelter. By topping up your ISA, you can ensure long-term protection if rules around the personal savings allowance ever change.
2. You can inherit ISAs. ISAs can be passed on after death, which is not the case with all savings vehicles.
3. ISAs are immune to tax thresholds. A pay rise could see you tip over the taxpayer threshold. This makes no difference to what’s held in an ISA.
4. Doesn’t matter if rates rise. Similarly, when interest rates rise, there’s a greater risk of exceeding your personal savings allowance threshold on standard savings accounts. But this has no impact on cash ISA savings.
5. Flexible ISAs. You can now take money out of ISAs and replace it in the same tax year without impacting your allowance. Rules around this vary from provider to provider, so make sure you check before withdrawing money. Learn more about this feature here.

Bottom line

Standard savings accounts and cash ISAs are both useful places to store your savings and it can be worth having some money in each. A cash ISA can be particularly beneficial at a time when interest rates are on the rise as, if you have a decent amount saved up, you could reach your personal savings allowance threshold. Saving money in a cash ISA will ensure you never have to pay tax on it.

Written by

Matthew Boyle

Publisher

Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife. See full bio

Matthew's expertise

Matthew has written 261 Finder guides across topics including:

• Helping first-time buyers apply for a mortgage
• Comparing bank accounts and highlighting useful features
• Publishing easy-to-understand guides