Glossary · UK
What is Cash ISA?
A savings account where all interest earned is entirely free of Income Tax, forming part of the overall £20,000 annual ISA allowance for 2026/27.
Full Definition
A Cash ISA is a savings account that works like an ordinary bank or building society savings account, except that all interest earned within it is completely exempt from Income Tax, with no need to declare it on a tax return regardless of how much is held or earned. Cash ISAs share the overall annual ISA allowance of £20,000 for 2026/27 with any other ISAs held in the same tax year (Stocks and Shares ISA, Lifetime ISA, Innovative Finance ISA), so money can be split across ISA types in any combination provided the combined total paid in does not exceed £20,000, and provided no more than £4,000 of that goes into a Lifetime ISA. Cash ISAs come in easy-access, notice and fixed-rate variants, much like ordinary savings accounts, and since April 2024 savers have been able to pay into multiple ISAs of the same type in a single tax year (previously restricted to one Cash ISA provider per year). Most flexible Cash ISAs also allow money to be withdrawn and replaced within the same tax year without it counting twice against the annual allowance. For basic-rate taxpayers with modest savings, the tax-free benefit of a Cash ISA is often smaller than it first appears, since the separate Personal Savings Allowance already shelters £1,000 of savings interest a year outside an ISA (£500 for higher-rate taxpayers, £0 for additional-rate taxpayers) -- but for larger savings balances, or for additional-rate taxpayers with no Personal Savings Allowance at all, the ISA wrapper's unlimited tax-free interest becomes increasingly valuable.
How Cash ISA is calculated
Tax saved = Interest earned x marginal Income Tax rate- 20000
- Total annual ISA allowance across all ISA types for 2026/27 (GBP).
Worked example: A higher-rate taxpayer holding GBP 20,000 in a Cash ISA paying 4% interest earns GBP 800 completely tax-free, saving GBP 320 in Income Tax compared with holding the same savings outside an ISA once their Personal Savings Allowance is exceeded.