ISA or savings account?

Last checked: 14 October 2026. We check this page regularly against official sources.

A cash ISA and an ordinary savings account can pay similar rates. The difference is tax. Interest in an ISA is tax-free. Interest outside an ISA can be tax-free too, up to the Personal Savings Allowance, and then it is taxed.

This is a general explanation, not advice on which account you should open.

The allowances, as published

For the 2026 to 2027 tax year, GOV.UK says you can save up to £20,000 in ISAs. That can be split across cash, stocks and shares, and innovative finance ISAs. A Lifetime ISA has its own cap of £4,000, and that £4,000 counts towards the £20,000.

The Personal Savings Allowance is the band of savings interest taxed at 0%. Under the Income Tax Act 2007 it is:

• £1,000 if you are a basic-rate taxpayer
• £500 if you are a higher-rate taxpayer
• nothing if you are an additional-rate taxpayer

£1,000

GOV.UK’s income tax rates for 2026/27 put the basic rate at 20% up to £50,270 of income, the higher rate at 40% to £125,140, and the additional rate at 45% above that. The standard Personal Allowance is £12,570. Confirm the figures that apply to you, because a Budget can change them. Scottish income tax bands differ; savings interest is still taxed at the UK savings rates.

There is also a starting rate for savings of up to £5,000, taxed at 0%, if your other income is low enough. The Finance Act 2026 freezes that £5,000 limit through to 2030/31. The rate checker has this as an optional illustration. It does not taper the allowance the way a real tax calculation does.

When the taxable account wins

If the interest you expect to earn this year sits inside your Personal Savings Allowance, you pay no tax on it anyway. A taxable account at 4.50% AER then beats an ISA at 4.20% AER. You keep the difference.

A basic-rate taxpayer with no other savings interest can earn about £1,000 before tax is due. At 5% that is roughly £20,000 of savings. A higher-rate taxpayer reaches the £500 allowance at about £10,000. An additional-rate taxpayer has no allowance, so the first pound of interest is taxed at 45%.

When the ISA wins

The ISA wins when interest will go over the allowance, or when you want room for a rate rise and a larger balance later. ISA interest does not use the allowance, so the allowance is left for other accounts.

Use the tax-band control on the results page. Enter any interest you have already earned this year. The after-tax figure is an illustration on the gross rate for the amount you typed. It is not a calculation of your actual bill, and interest itself can push you into a higher band.

Flexible ISAs and transfers

A flexible ISA lets you take money out and put it back in the same tax year without using extra allowance. Not every ISA is flexible. Where it has been checked, the account row shows a Flexible badge. The rules are on the flexible ISA page.

Moving an ISA should be a transfer, not a withdrawal you pay back in. A withdrawal can use up allowance. Where the provider has confirmed it, the account row says whether transfers in are accepted.

Lifetime ISA

A cash Lifetime ISA is listed with ISAs, not mixed into ordinary easy access. You must be 18 to 39 to open one. The government adds a 25% bonus on contributions up to £4,000 a year. Taking money out for anything other than a first home (within the scheme rules) or from age 60 can trigger a 25% withdrawal charge, which takes back the bonus and a slice of your own money. The AER on the account does not include the bonus. ClearRates does not tell you whether a Lifetime ISA suits you.

Kids

A Junior ISA is a different allowance, for a child, and the money is locked until they turn 18. Cash Junior ISAs are on Junior ISA. Other children’s accounts are on Children’s savings. The rules are in the children’s savings guide. Check the current Junior ISA limit on GOV.UK rather than relying on an old figure.

Questions

How much can I put in an ISA in 2026/27?

GOV.UK says the ISA allowance for the 2026 to 2027 tax year is £20,000. A Lifetime ISA is limited to £4,000 of that, and only one Lifetime ISA can be paid into in a tax year.

Does ISA interest use up the Personal Savings Allowance?

No. Interest inside an ISA is already tax-free and does not use the Personal Savings Allowance.

Is a higher taxable rate always better if I am inside my allowance?

Often yes, while the interest you will earn sits inside your Personal Savings Allowance. If a rate rise or a larger balance would push you over it, the ISA can win even at a slightly lower AER.