Is a cash ISA worth it compared with a normal savings account in 2026/27?

Full answer

Whether a cash ISA beats an ordinary savings account in 2026/27 depends on how much interest you earn and your tax band. Outside an ISA, the Personal Savings Allowance gives basic-rate taxpayers GBP 1,000 of tax-free interest, higher-rate taxpayers GBP 500, and additional-rate taxpayers GBP 0. Inside an ISA, all interest is tax-free with no limit on the interest, and you can subscribe up to GBP 20,000 each tax year. Worked example: James is a higher-rate (40%) taxpayer with GBP 40,000 in savings paying 4%, earning GBP 1,600 of interest. His PSA is only GBP 500, so GBP 1,100 is taxable at 40%, costing GBP 440. If the same money sat in a cash ISA at a similar rate, all GBP 1,600 would be tax-free, saving him GBP 440 a year. For a basic-rate saver with GBP 20,000 at 4% (GBP 800 interest), the GBP 1,000 PSA already covers it, so an ISA saves nothing on tax this year, though it protects against future rate rises pushing interest over the allowance. The ISA advantage grows as balances and rates rise, and is most valuable for higher and additional-rate taxpayers who have small or no PSA. Compare the ISA's headline rate with a taxable account's after-tax rate before deciding, as a slightly higher non-ISA rate can sometimes still win for basic-rate savers within their PSA. Use the isa calculator and the savings calculator to compare after-tax outcomes for your balance and rate. For ISA rules and allowances, check gov.uk.

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