What is a Cash ISA?

A Cash ISA is simply a savings account you never pay tax on. This means any interest you earn on this account is tax-free forever. If you are a UK resident aged 16 or over, you can save money in a Cash ISA every tax year up to a limit. This tax year (2020-21), you are allowed to save up to a maximum of £20,000 in a Cash ISA or a combination of ISAs.

Cash ISAs can be flexible. Flexible ISAs allow you to withdraw cash out of your ISA and put it back in the same tax year without reducing your allowance. For example, say you put £16,000 in a cash ISA in one tax year. If the ISA is flexible and you withdraw the £16,000, you would be able to put it back into the ISA later in the same tax year. If the ISA is not flexible, you won't be able to put the £16,000 back into the ISA as you'd have used up that bit of your allowance. You'd only be able to put in £4000, which is the remainder of your allowance. Many providers offer flexible ISAs, but they are not required to do so. So, be sure to check before you buy.

There are several types of cash ISAs, but the two popular ones are easy-access cash ISAs (these allow you to withdraw your money whenever you want) and fixed-rate cash ISAs (these allow you to save your money for a fixed period at a guaranteed interest rate). Below, you'll find the easy-access and fixed-rate cash ISAs which pay the highest interests at the moment. These are not recommendations. They are simply the ISAs with the highest interest rates. We also indicate which ISAs are flexible and which ones aren't. All financial institutions we list are regulated by the FCA, and their savings accounts are protected by the FSCS up to £85,000.

If you decide to switch providers based on the rates below, do not withdraw your money from your current provider and move it to another as doing so will cost you all the tax benefits. Instead, inform your new provider of the transfer. Your new provider should then sort it all out, including moving the money to your new ISA. We let you know below which providers allow transfers in.

woman holding tax-free sign

Top One-year Fixed Cash ISAs
(0.6% - 0.8%)

  • If interest rates increase, you won't benefit

Cons:

  • You'll know exactly how much you'll get back at the end of the term
  • If interest rates reduce, you’d be better off

One-year fixed rate cash ISAs allow you to save your money for a fixed period of one year at a guaranteed interest rate. Since the interest is guaranteed, it will not be changed. You won't normally be able to withdraw money from a fixed rate ISA before the end of the fixed term (also called 'maturity'). However, if you must withdraw your money before maturity, you may be charged an early withdrawal penalty. Usually, the penalty is a loss of interest; for instance, you could lose 90 days' interest.

Pros:

Top Two-year Fixed Cash ISAs
(0.8% - 0.9%)

  • If interest rates increase, you won't benefit

Cons:

  • You'll know exactly how much you'll get back at the end of the term
  • If interest rates reduce, you’d be better off

Two-year fixed rate cash ISAs allow you to save your money for a fixed period of two years at a guaranteed interest rate. Since the interest is guaranteed, it will not be changed. You won't normally be able to withdraw money from a fixed rate ISA before the end of the fixed term (also called 'maturity'). However, if you must withdraw your money before maturity, you may be charged an early withdrawal penalty. Usually, the penalty is a loss of interest; for instance, you could lose 90 days' interest.

Pros:

Top Three-year Fixed Cash ISAs
(0.8% - 1.1%)

  • If interest rates increase, you won't benefit

Cons:

  • You'll know exactly how much you'll get back at the end of the term
  • If interest rates reduce, you’d be better off

Three-year fixed rate cash ISAs allow you to save your money for a fixed period of three years at a guaranteed interest rate. Since the interest is guaranteed, it will not be changed. You won't normally be able to withdraw money from a fixed rate ISA before the end of the fixed term (also called 'maturity'). However, if you must withdraw your money before maturity, you may be charged an early withdrawal penalty. Usually, the penalty is a loss of interest; for instance, you could lose 90 days' interest.

Pros:

Top Five-year Fixed Cash ISAs
(1.05% - 1.21%)

  • If interest rates increase, you won't benefit

Cons:

  • You'll know exactly how much you'll get back at the end of the term
  • If interest rates reduce, you’d be better off

Five-year fixed rate cash ISAs allow you to save your money for a fixed period of five years at a guaranteed interest rate. Since the interest is guaranteed, it will not be changed. You won't normally be able to withdraw money from a fixed rate ISA before the end of the fixed term (also called 'maturity'). However, if you must withdraw your money before maturity, you may be charged an early withdrawal penalty. Usually, the penalty is a loss of interest; for instance, you could lose 90 days' interest.

Pros:

One more thing...

Quick Tip 💁
If you decide to switch providers based on the rates above, do not withdraw your money from your current provider and move it to another. Doing so will cost you all the tax benefits. Instead, inform your new provider of the transfer and let them sort it out.

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