A cash ISA is simply a tax-free savings account every UK adult can put £5,340 per tax year in. Once in, it remains tax-free year after year. But if you don't use a year's allocation, you lose it.
If you've opened a cash ISA before don't worry; provided you haven't done it since the new tax year began, on 6 April, you're free to open another. This daily updated guide compares the best buys and includes a free calculator to work out the gain.
In this guide
What is an ISA?
For 10 years now whether on telly, radio or in m'book I've used the same analogy to explain ISAs. So why stop now? Here come the cakes!

For a more detailed explanation of ISAs, (don't worry it still includes the cakes) see the ISA Guide.
How do Cash ISAs work?
A cash Individual Saving Account (ISA) is just like a normal savings account - you can take cash out whenever you want, the only difference is the interest isn't taxed.
Basic rate taxpayers must normally hand over 20% of their savings interest to the taxman, higher rate taxpayers 40% - but in an ISA, you keep that. In other words, basic rate taxpayers earn a quarter more interest at the same rate in a cash ISA, and higher rate taxpayers two-thirds more.
Everyone aged 16 or over can save a limited amount in one each tax year (which starts on the 6 April and ends the following 5 April) and the real kicker is...
Keep the money in the ISA - it stays tax-free YEAR-AFTER-YEAR.
For the current 2011-12 tax year the annual ISA allowance has been increased to £10,680. However only £5,340 of that may be used for a cash ISA.
Yet many providers gleefully steal your advantage by paying disgustingly low rates like 0.1%, which is why it's important to use the best-buys below to ensure you maximise its use.
However there are many confusions with cash ISAs, so to spell it out....
Money may be withdrawn at any time without losing tax benefits
Providing you've picked an easy access ISA, you can withdraw the money whenever you want just like a normal savings account. The key thing to remember is once the money's withdrawn, it can't be returned.
An example should help... say you save £4,000. That leaves you £1,340 left to put in. Then two months later, still in the same tax year, you take out £2,000. You can still ONLY put £1,340 back in.
You get a new ISA allowance each tax year
Each tax year (6 April until the next 5 April) everyone aged 16 or over gets a new cash ISA allowance. But if you don't use it, you lose it.
Once that year's closed you cannot put another penny in that specific cash ISA. So if you put in nothing in the 2010-11 year, that's it - it's gone. If you put £2,000 in, even though that year's maximum was £5,100 - the year is closed, you can't now top it up.
Yet if you do put the cash in in time, you can keep it in there, tax-free for as long as you like.
As soon as the new tax year starts on the next 6 April, you can put a whole new year's allowance in - and from April 2011 this is £5,340.
You can have lots of ISAs, but only from different years
The golden rule is you can only open a cash ISA with one provider in a tax year, you can't split it. However you can hold lots of different cash ISAs from different years with different providers.
So if you opened a cash ISA with Barclays two years ago, you don't need to stick with it for this year's cash ISA, you can choose whoever the top payer is.
You can transfer ISAs from past years to up the rate
ISA providers love us to think once our money's in, its a done deal. This is wrong. You have a right to transfer past years' cash ISAs to the new best buys - and if you've got serious cash saved in them, this can make a massive difference.
For full pros and cons on this, and which top paying cash ISAs allow you to transfer, see the full cash ISA transfers guide.
How safe are your savings?
Provided your money is in a UK regulated bank or building society account, it's protected under the Financial Services Compensation Scheme (FSCS). Its golden rule counts for Cash ISAs too...
The first £85,000 per person, per financial institution is guaranteed.
While that sounds simple, the exact rules are more complex - not every bank in the UK is UK-regulated (e.g. ING Direct savings isn't) and there are complex rules involving how different banks are registered and what counts as a financial institution. For full info on the rules see the detailed Are Your Savings Safe? guide.
How to maximise safety
If you've more than £85,000 of savings (including cash ISAs and others) in one bank then, in the unlikely event it went bust, only the first £85,000 is fully guaranteed. So for total peace of mind don't put more than this in any one institution, spread it around.
This guide and best buys
It's impossible to pick "which bank is in trouble?". We've seen great names of world banking like Goldman Sachs and Merrill Lynch in trouble.
Therefore our preferred option is to report the top rates regardless, but let you know if it's not covered by the UK protection.
The UK's Top Rate Cash ISAs
In general, higher interest is better, yet tricks like short-term bonus interest rate hikes, limited withdrawals and transfer penalties abound - so below we explain them and you need prioritise.
Most cash ISAs are 'variable rate', meaning they move both with the Bank of England base rate and providers' own competitive reasons, so whatever you plump for check regularly the rate's still competitive and if not transfer it.
Alternatively consider the top Fixed Rate Cash ISAs section, plus check branches of smaller building societies, which often have good rates for locals.
Top paying cash ISAs
Cheshire BS, 3.06% AER Postal. Min £1,000. No transfers
- Rate: 3.06% AER includes 2.06% bonus until 30 September 2013
- Min deposit: £1,000
- Interest paid: Annually only
- Allows previous ISA transfers? No
- Transfer out penalties? No
- Access: Post
- Safety: £85,000 UK protection shared with Nationwide, Derbyshire and Dunfermline BSs
The Direct Cash ISA (issue 1) from Cheshire BS pays 3.06% AER including a 2.06% bonus until 30 September 2013. The minimum deposit is £1,000, which must be paid by cheque, but it doesn't allow transfers in of previous years' ISAs. You can apply for the account online or by phone, but access is by post only.
Cheshire BS shares its £85,000 UK protection with Nationwide, Derbyshire and Dunfermline building societies. See more information about the Savings Safety rules.
AA, 3.05% AER Online. Min £500. No transfers
- Rate: 3.05% AER includes 1.35% bonus for a year
- Min. Deposit: £500
- Interest paid: Annually only
- Allows previous ISA transfers? No
- Transfer out penalties? No
- Access: Online
- Safety: Full £85,000 UK protection shared
If you've less to save, AA's Internet Access ISA pays 3.05% AER including a 1.35% bonus for a year. You must deposit a minimum £500. You can open and access the account online. It's also for new ISA money only, so you can't transfer in previous years' ISAs.
The AA is part of the HBOS group and so shares its £85,000 savings safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
Virgin, 2.85% AER Online. Min £1. Transfers allowed
- Rate: 2.85% AER
- Min. Deposit: £1
- Interest paid: Annually or monthly
- Allows previous ISA transfers? Yes
- Transfer out penalties? No
- Access: Online
- Safety: Shared £85,000 UK protection with Northern Rock
The Easy Access Cash E-ISA from Virgin* pays 2.85% AER on balances over £1. It allows transfers of previous years' ISAs and interest is paid annually or monthly. The account can be opened and accessed online.
Although it's branded Virgin, the account is actually operated by Northern Rock - so you're currently covered under Northern Rock's £85,000 protection. In Jan 2012 Virgin bought the savings arm of Northern Rock. Later in 2012 the two will merge and the protection will be shared. So be careful if you have more than £85,000 across both.
Full details in the MSE News story and more information about the Savings Safety rules.
To see how switching will affect your savings, use the ISA Savings Calculator and input the interest.
Top ethical variable rate cash ISAs
Ethical savings accounts - where providers behave ethically in terms of the environment, human rights and more - have jumped in popularity. Our main focus always is telling you the top savings rates, but to match demand we've worked with Ethical Consumer magazine to list the top-paying accounts that also rate highly on their ethics.
Ethical ISAs: Earn up to 3.07% AER tax-free
All of the accounts below have the full UK savings safety protection. See the graph on the right for what Ethical Consumer's ratings mean.
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2.5% AER - most ethical
The Charity Bank Ethical ISA pays 2.5% AER variable (min £250), and you can transfer in previous year's ISAs. However you must give 33 days notice to withdraw cash.
Charity Bank has the full UK £85,000 savings safety - more info about Savings Safety rules. Ethical consumer score: 15 out of 20. -
2.8% AER- highest paying ethical account.
The overall winner is also ethical. Principality's e-ISA (issue 2) pays 2.8% AER, incl a 1% bonus for a year, and it lets you transfer in previous years' ISAs. Min balance £1. Ethiscore: 13.5 out of 20.
The Top Fixed Rate Accounts
If you're willing to lock your cash away there are some alternatives which guarantee a decent rate for a set period of time. Yet do remember...
Fixed rate ISAs give a guaranteed rate for a set period, but you will face severe penalties if you try to take money out during that time.
Therefore they're mainly suitable for those happy to lock cash away for the entire term - meaning you lose the flexibility to ditch and switch to a better payer if the rate is no longer competitive.
The Best One Year Fixed Rates
If you want to lock away your cash, you can opt for a fix and get a better rate on a one year fixed ISA than the top easy access accounts above.
Metro Bank 3.25% AER From £1. Post or branch. Transfers allowed.
- Product & linkMetro Bank
- Rate: 3.25% AER
- Length of fixed deal: 1 year
- Min deposit: £1
- Access: Post or branch
- Allows transfers from previous years? Yes
- CLOSURE penalty: 180 days' interest
- Savings safety: Full £85,000 FSCS protection
The Fixed Rate Cash ISA from Metro Bank pays 3.25% AER for a year with a minimum deposit of £1. It accepts transfers in from previous years ISAs and pays interest annually on 5 April. You can apply by post or in one of its nine branches, although these are centred around London.
Metro Bank has the full £85,000 FSCS protection. See more information about the Savings Safety rules. .
Leeds BS 3.25% AER From £100. Post or branch. No transfers.
- Product & linkLeeds BS Fixed Rate ISA
- Rate: 3.25% AER
- Length of fixed deal: 1 year
- Min deposit: £1
- Access: Post or branch
- Allows transfers from previous years?No
- Savings safety: Full £85,000 FSCS protection
- Withdrawal penalty: 25% of balance can be withdrawn penalty free, then 90 days' interest
The one year fixed rate ISA (issue 29) from Leeds BS pays 3.25% AER with a minimum deposit of £1, however transfers in are not allowed. The account can be opened online, by post or in branch but can only be operated in branch or by post.
Leeds Building Society has the full £85,000 UK savings safety guarantee. See more information about the Savings Safety rules.
The Best Two Year Fixed Rates
If you want to lock your cash away for longer, other length deals are available, yet in the current climate there's little guidance on where rates will be in a few years' time. If you choose to lock your cash away for several years now, fixed rates could improve, meaning you'll be locked into a non-top pick account.
Halifax 3.7% AER
From £500. Online, phone & branches. Allows transfers
- Product & linkHalifax Fixed ISA Saver Fixed
- Rate: 3.7% AER
- Length of fixed deal: 2 years
- Min deposit: £500
- AccessOnline/Branch/Phone
- Allows transfers from previous years?Yes
- CLOSURE penalty:180 days' interest
- Savings safety: Full £85,000 FSCS protection, shared across HBOS group
The ISA Saver Fixed from Halifax pays 3.7% AER for 2 years. You can only make one deposit which needs to be at least £500 and can also transfer in money from previous years' ISAs. It can be operated by phone or in branches and can be viewed online. Interest can only be paid annually.
Halifax shares its £85,000 UK saving safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
The Best Three Year Fixed Rates
If you're happy to lock your cash away for longer, slightly higher rates are available. There isn't much guidance on where rates are heading, so if you choose to lock your cash away for several years now, fixed rates could improve, meaning you'll be locked into a non-top pick account.
Aldermore 3.8% AER From £1,000. Online, phone or post. Transfers allowed.
- Product & link Aldermore Fixed Rate Cash ISA
- Rate: 3.8% AER
- Length of fixed deal: 3 year
- Min deposit: £1,000
- Access: Online, phone or post
- Allows transfers? Yes
- CLOSURE penalty: 180 days' interest
- Savings safety: Full £85,000 FSCS protection
The one year Fixed Rate Cash ISA from Aldermore pays 3.8% AER on balances over £1,000. Transfers in of previous years' ISAs are allowed. You can open the account online, by phone or post. Interest is paid annually or monthly at the slightly lower rate of 3.74% AER.
Aldermore has the full £85,000 UK protection. See more information about the Savings Safety rules.
Halifax 3.7% AER
From £500. Online, phone & branches. Allows transfers
- Product & linkHalifax ISA Saver Fixed
- Rate: 3.7% AER
- Length of fixed deal: 3 years
- Min deposit: £500
- AccessOnline/Branch/Phone
- Allows transfers from previous years?Yes
- CLOSURE penalty:270 days' interest
- Savings safety: Full £85,000 FSCS protection, shared across HBOS group
The ISA Saver Fixed from Halifax pays 3.7% AER for three years. You can only make one deposit which needs to be at least £500 and can also transfer in money from previous years' ISAs. It can be operated by phone or in branches and can be viewed online. Interest can only be paid annually.
Halifax shares its £85,000 UK saving safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
The Best Four Year Fixed Rates
If you're happy to lock your cash away for four years higher rates are available. There isn't much guidance on where rates are heading, so if you choose to lock your cash away for several years now, fixed rates could improve, meaning you'll be locked into a non-top pick account.
Halifax 4.3% AER
From £500. Online, phone & branches. Allows transfers
- Product & linkHalifax ISA Saver Fixed
- Rate: 4.3% AER
- Length of fixed deal: 4 years
- Min deposit: £500
- AccessOnline/Branch/Phone
- Allows transfers from previous years?Yes
- CLOSURE penalty:320 days' interest
- Savings safety: Full £85,000 FSCS protection, shared across HBOS group
The ISA Saver Fixed from Halifax pays 4.3% AER for four years. You can only make one deposit which needs to be at least £500 and can also transfer in money from previous years' ISAs. It can be operated by phone or in branches and can be viewed online. Interest can only be paid annually.
Halifax shares its £85,000 UK saving safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
The Best Five Year Fixed Rates
If you are happy to lock away your cash for five years a higher rate is available. Yet here you are taking an even bigger gamble on rates staying low for a significant period. If UK interest rates recover between now and 2016, you could lose out as your cash is stuck at this rate.
Halifax 4.4% AER
From £500. Online, phone & branches. Allows transfers
- Product & linkHalifax Fixed Rate ISA Saver
- Rate: 4.4% AER
- Length of fixed deal: 5 years
- Min deposit: £500
- AccessOnline/Branch/Phone
- Allows transfers from previous years?Yes
- CLOSURE penalty:365 days' interest
- Savings safety: Full £85,000 FSCS protection, shared across HBOS group
The Fixed Rate ISA Saver from Halifax pays 4.4% AER for five years. You can only make one deposit which needs to be at least £500 and can also transfer in money from previous years' ISAs. It can be operated by phone or in branches and can be viewed online. Interest can only be paid annually.
Halifax shares its £85,000 UK saving safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
BM Savings 4.25% AER
From £500. Post only, allows transfers
- Product & linkBM Savings Fixed Rate ISA Saver
- Rate: 4.25% AER
- Length of fixed deal: 5 years
- Min deposit:£500
- Access:Post
- Allows transfers from previous years?Yes
- Withdrawal penalty:365 days' interest
- Savings safety: £85,000 FSCS protection, shared with HBOS group
The fixed rate ISA Saver from BM Savings pays 4.25% AER for five years. You can only make deposits while ths issue of the account is open and you can also transfer in money from previous years' ISAs. The account can be opened online or by phone and then operated by post only. Interest can be paid annually or monthly.
Birmingham Midshires shares its £85,000 UK savings safety guarantee with the rest of the HBOS group. See more information about the Savings Safety rules.
Use the net to compare top rates
Fixed Rate deals can change regularly, for a full list of fixed rate ISAs use the MoneySupermarket* (select Cash ISAs and then Bonds) comparison or Moneyfacts. Though remember, they're just a simple list of top rates, so ensure you check for the possible pitfalls noted in this article.
Top ethical fixed rate cash ISAs
Ethical savings accounts - where providers behave ethically in terms of the environment, human rights and more - have jumped in popularity. Our main focus always is telling you the top savings rates, but to match demand we've worked with Ethical Consumer magazine to list the top-paying accounts that also rate highly on their ethics.
Earn up to 4.5% AER fixed, tax-free
All of the accounts below have the full UK savings safety protection. See the graph on the right for what Ethical Consumer's ratings mean.
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3.25% AER fixed for one year.
Leeds BS pays 3.25% for one year in its 1 Year Fixed Rate ISA (issue 27), min £1. You can't transfer previous years' ISAs in. Ethical Consumer score: 13 out of 20.
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3.25% AER fixed for two years.
Although it matches the top one year, Norwich & Peterborough pays 3.25% AER on its 2 year fixed rate cash ISA. You can only save a lump sum of £5,340. Ethical Consumer score: 14 out of 20.
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3.5% AER fixed for three years.
Skipton BS wins here, paying 3.5% AER on its 3 year fixed rate cash ISA (min £500). Transfers from previous years' ISAs allowed. Ethical Consumer score: 13 out of 20.
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4.1% AER fixed for five years.
The Fixed Rate ISA (9) from Coventry BS pays 4.1% AER until May 2016 (min £5,340). Transfers in not allowed. Ethical Consumer score: 13.5 out of 20.
Inflation-beating ISA savings
An alternative to fixing is get an account that gives you a rate guarantee for a certain period. However, the usually you have to lock cash away for up to five years, so only go for it if you are totally sure you won't need access. See full details of all the top accounts in the Inflation-Linked Savings guide
Cash ISAs: Q&A with Martin Lewis
Filmed on 14 March 2011
What about Toisas?
The Tessa-only ISA, tongue-twistingly known as a Toisa, was another special tax-free product. Old style TESSAs, the forerunner of the cash ISA, lasted for five years and then matured. If this occurred any time between 1999 and 2004, the TESSA automatically turned into a Toisa.
Since April 2008, all Toisas have become simple Cash ISAs, meaning all normal ISA rules apply. You can no longer add funds to an old Toisa, but if you have any money left in one, you can transfer it and up the rate see Cash ISA Transfers for the best accounts that let you move money in.
The Savings Calculator
When using the calculator below, for increased accuracy use the AER (Annual Equivalent Rate) which should be listed on your statement. Obviously as most accounts' interest rates are variable, the answers will change if the rate does, so use the calculator as a rough indicator of the likely outcome only.
The calculator assumes you put money in at the beginning of each month, so if this isn't how you do it, the answers will be ever-so-slightly out. If you don't make regular deposits but put in lump sums, figure out the monthly equivalent for a rough answer. Feel free to play with the results to see how your savings are affected.
The Size of the Saving
A basic rate taxpayer saving £5,340 over three years, in a poor savings account, of which there are sadly many, would earn £6 interest. In a top savings account it's £396, but the same amount in the top cash ISA, as it's tax free, earns £546. Yet not all cash ISAs are the same. One of Halifax's pays a paltry 0.05%, meaning it'd underpay the market leader by over £530 in interest.
The benefits are even bigger for higher rate taxpayers; then the top cash ISA outperforms the top savings account by almost £250.
Interest Rate | Untaxed | Basic Rate Tax |
Higher Rate Tax |
Additional Rate Tax |
|
|---|---|---|---|---|---|
Poor Savings Account (1) | 0.05% | £8 | £6 |
£5 |
£4 |
Top Savings Account (2) | 3% | £495 | £396 |
£297 |
£248 |
Poor ISA (3) | 0.1% | £16 | £16 |
£16 |
£16 |
Top ISA (4) | 3.3% | £546 | £546 |
£546 |
£546 |
Assumes rates are stable (1) Halifax Liquid Gold (2) Santander eSaver (3) Halifax variable rate ISA (4) Santander Flexible ISA | |||||




