What is a Cash ISA?

What’s the difference between Cash ISAs and other types of ISA?

In a Cash ISA, your money is kept as cash and pays a certain rate of interest. This means Cash ISAs are generally a lower risk option in comparison to other types of ISA such as a Stocks and Shares ISA where your money can be invested. This is because the value of investments can rise and fall and you may not get back what you invest.

Low risk can also mean lower returns, so it’s important to consider that inflation reduces the spending power of your money.

What is the ISA allowance?

This is called the ISA allowance.

You're free to split your ISA allowance any way you like across Cash ISA, Stocks and Shares ISA, Lifetime ISA (maximum of £4,000) and an Innovative Finance ISA - as long as you stay within the overall £20,000 limit.

For example, you could pay £4,000 into a Innovative Finance ISA, £4,000 into a Stocks and Shares ISA, and £12,000 into a Cash ISA in any one tax year.

The tax year runs from 6 April to 5 April, and the deadline for adding money is 5 April.

Balancing your Cash ISA and saving allowance

For non-ISA savings, interest could be subject to tax. The amount of tax you pay on your interest depends on your total income in the tax year and any allowances you have on your savings.

What is the Personal Savings Allowance and starting rate?

Your Personal Savings Allowance (PSA) is the total amount of interest you can earn across your savings accounts, which doesn’t fall into your Personal Allowance or your starting rate for savings (if applicable), without paying tax. The amount of interest you can earn without paying tax depends on your tax band.

Basic-rate taxpayers get their first £1,000 of savings interest tax-free. Higher-rate taxpayers have an allowance of £500 each year and additional-rate taxpayers will pay tax on all their interest.

If your other income is less than £17,570 you may also get up to £5,000 of interest and not have to pay tax on it. This is your starting rate for savings. Every £1 of non-savings, non-dividend income above your Personal Allowance reduces your starting rate for savings by £1.

A Cash ISA can help you continue to earn tax-free interest on your savings without going over your Personal Allowance, starting rate for savings (if applicable) and Personal Savings Allowance.

Please note, the PSA for Scottish taxpayers is based on the rest of the UK tax bands.

Learn more about how your savings are taxed

Are Cash ISAs safe?

Cash you put into savings products, including a Cash ISA, which are provided by an authorised bank or building society is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS savings protection limit is currently up to £85,000 per eligible person, per bank, building society or credit union. Any deposits over £85,000 with the same bank licence are not likely to be covered.

More about how your money is protected

Is a Cash ISA right for me?

People save for different reasons, and the right saving method for you will depend on your goals.

If you’re saving for a specific goal within the next few years, keeping your money in a Cash ISA earning a secure level of interest could be a good option.

If you have money you’re not planning to spend in the next five years, a Stocks and Shares ISA could be an option to consider if you are happy with the risks of investing. By investing your money for periods over 5 years, any ebbs and flows in the market will often out-perform cash but of course there are no guarantees.

How to open a Cash ISA with HL

With HL, opening an account takes less than 10 minutes.

Thanks to our innovative Active Savings platform, you can easily move between savings accounts, taking advantage of the competitive rates from a single online hub. Compare savings products from our banking partners, add and withdraw money, view your cash balance and more - all in one easy-to-manage online account.

Find out more about HL Cash ISA