A cash ISA operates in exactly the same way as if you were putting money into a savings account that pays interest (the difference being that with an ISA, you don’t pay tax on the interest).
Some Cash ISAs can be opened with as little as £1. But others require more substantial amounts and are primarily designed to attract people who have already been saving inside a Cash ISA for a number of years and are now looking for a better rate.
Unlike a regular savings account, only a maximum of £20,000 can be deposited in a Cash ISA each year as of the 2026/27 tax year, spanning from 6 April 2026 to 5 April 2027. This limit is also shared across other ISAs, such as a Stocks and Shares ISA.
However, as announced in the 2025 Autumn Budget, the limit for new contributions to a Cash ISA is being dropped to £12,000 for anyone under the age of 65 starting from 6 April 2027.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Beware The Teaser Rates
Obviously, when you first open a Cash ISA, you’ll look for one that has a competitive interest rate.
As with ordinary savings accounts, many offer bonus rates to attract new business that typically only last for 6 or 12 months. You can also get variable rates as well as ones that are fixed for a year or even longer.
ISA rates tend to be more seasonal than mainstream savings accounts, however. Sometimes you’ll find that the rates on offer don’t compare that well with ordinary savings accounts, as the banks and building societies save their best offers for the March/April/May period, which is when most money tends to be put into Cash ISAs.
Play The Transfer Market
As time passes, you’re likely to find that the rate you get on your Cash ISA doesn’t compare very well with the products being offered to new customers.
So, it’s important to vote with your wallet and move your money to another ISA provider if the gap gets too large. Make sure you don’t close your original account when you do this, though, as you’ll lose the tax protection for the money held in your Cash ISA.
Fortunately, as of 6 April 2024, savers can now make partial transfers from one ISA to another. In past, transfers required the entire balance to be moved, but with partial transfers now possible, that’s no longer the case, allowing for maximum flexibility.
Having said that, not all ISA providers support partial transfers, so it’s important to check before starting the transfer process.
It’s also worth bearing in mind that the transfer of Cash ISAs can take quite a while to be completed, particularly if there is a lot of demand for the ISA you’re transferring to. So, it pays to be persistent and follow up on your application if needs be.
Another significant improvement to flexibility that came in April 2024 is the ability to open and pay into multiple Cash ISAs with different providers, all in the same tax year. However, the minimum age required to open a Cash ISA also increased from 16 to 18.
The Personal Savings Allowance
The Personal Savings Allowance was introduced in April 2016, and it means the first £1,000 of interest will be exempt from tax if you are a basic-rate taxpayer, dropping down to £500 if you are a higher-rate taxpayer (additional rate taxpayers receive no exemption).
As a result of this change, savings income is now paid gross by default, rather than the old system, where 20% is automatically deducted, since an estimated 95% of people would no longer need to pay tax on their savings when this updated system was implemented roughly a decade ago.
Since then, interest rates have increased significantly following a surge of inflation in 2022. The Bank of England has since begun cutting interest rates again. But as of 2026, they remain elevated.
As a result, the demand for Cash ISAs has once again been revived as more savers start earning more than the £1,000 annual Personal Savings Allowance.