Cash ISA vs Savings Account — Which Wins?

Why Cash ISA tax-free matters more than you think

At 4.5%, £22,500 earns £1,000 interest — enough to use up a basic-rate PSA. Over that, you pay 20% (£200 lost). Higher-rate: tax starts at £11,100 balance. Additional-rate: tax from the first pound.

When Cash ISA is obviously worth it

• Higher or additional rate taxpayer
• Balance above £20,000 (plus adding more)
• Expect rate rises or balance growth that would push you over PSA

When it is close

Non-taxpayers with sub-£20,000 balance and rates under 5% — tax impact is zero, so the ISA's only benefit is future-proofing.

Watch out for

• Some fixed-rate Cash ISAs beat variable savings rates — but lock your money
• Flexible ISAs let you withdraw and re-add without using allowance
• You can split £20,000 across ISA types (Cash + S&S in the same year since April 2024)

Frequently asked questions

Can I open multiple Cash ISAs?

Yes since April 2024. The £20,000 total allowance still applies across all of them.

Does ISA interest count towards my PSA?

No — the two are completely separate.

Should I always max my Cash ISA before taxable savings?

For most people yes. The only exception is if your Cash ISA pays materially less than the best taxable rate AND you are a non-taxpayer below PSA.