Cash ISA vs Taxable: 2026/27
UK Cash ISA vs Taxable Savings (2026/27)
Practical break-even analysis of UK Cash ISA vs taxable savings for 2026/27: when ISA shelter outperforms PSA at various savings rates + tax bands, types of Cash ISA, transfer mechanics, FSCS £85k protection, flexible ISA mechanics for emergency funds, and the spouse APS that preserves ISA wrapper on death.
Break-even tables (taxable balance where ISA wins)
| Savings rate | Basic-rate break-even (£1,000 PSA) | Higher-rate break-even (£500 PSA) | Additional-rate (£0 PSA) |
|---|---|---|---|
| 3% | £33,333 | £16,667 | £0 (no PSA) |
| 4% | £25,000 | £12,500 | £0 |
| 5% | £20,000 | £10,000 | £0 |
| 6% | £16,667 | £8,333 | £0 |
Above break-even, Cash ISA saves tax on the excess interest. Below break-even, taxable savings often offer wider provider choice + slightly higher headline rates that beat the ISA shelter benefit.
Frequently asked questions
When does Cash ISA beat a higher-rate savings account?
When your savings interest exceeds your PSA. Approximate breakeven: divide your PSA by the savings rate. Basic-rate £1,000 PSA at 4% = £25,000 breakeven; at 5% = £20,000. Above breakeven, Cash ISA saves tax on the excess. Higher-rate £500 PSA halves these. Additional-rate £0 PSA = ISA wins from £1 of interest. Long-term ISA benefit: cumulative tax shelter over years. Once money is in ISA, all growth + interest stays tax-free regardless of future tax band changes. PSA could be reduced or removed in future budgets.
How does the £20,000 ISA allowance work?
Each tax year (6 April - 5 April) you can deposit up to £20,000 across Cash + Stocks & Shares + Innovative Finance + Lifetime ISAs (LISA capped at £4k per year, counts toward £20k total). Allowance does NOT carry over - "use it or lose it". You can hold ISAs at multiple providers; from April 2024 you can pay into multiple of the SAME type in a year (previously only one Cash ISA + one S&S ISA per year). Transfers between providers don't use new allowance. Withdrawals don't restore allowance (except in "flexible ISAs" where same-tax-year replacement is allowed).
What types of Cash ISA exist?
(1) Easy-access Cash ISA - withdraw anytime, variable rate, often the lowest rate. Good for emergency fund. (2) Fixed-rate Cash ISA - 1-5 year term, higher rate, early withdrawal penalty (typically 60-180 days interest lost). Best for funds you don't need quickly. (3) Notice account Cash ISA - withdraw with 30-95 days notice, slightly higher rate than easy-access. (4) Lifetime ISA - £4k/yr + 25% government bonus, first-home (£450k cap) or age 60 access only. See our LISA guide. (5) Junior Cash ISA - for under-18s, £9k annual limit, locked until 18.
Can I transfer an old Cash ISA to a better rate?
Yes - use the formal "ISA transfer" process, NOT withdraw + redeposit. Withdrawing closes the ISA shelter; transfer preserves it. Process: open new ISA at receiving provider, complete their ISA transfer form, they liaise with old provider to move balance. Transfer typically takes 15 working days (Cash ISA) or 30 days (S&S ISA). You can transfer current-year ISA in full OR previous-year ISA in part or full. Don't transfer mid-fixed-term Cash ISA without checking early-exit penalties - the rate gain may not cover the penalty.
What about FSCS protection?
Cash ISAs are protected by Financial Services Compensation Scheme up to £85,000 per person per FSCS licence (banking group). Some banking groups share an FSCS licence (e.g. Lloyds + Halifax + Bank of Scotland share one; HSBC + first direct share one; NatWest + RBS share one). Total balance across the group is protected up to £85k combined, not £85k per brand. For combined balances above £85k per licence, split across genuinely separate licences. NS&I products have separate unlimited government protection.
Should I keep emergency fund in Cash ISA?
Often yes. Easy-access Cash ISA offers tax-free interest + same-day or 1-2 day access. Trade-off: if you withdraw + need to replace, you lose ISA allowance (unless it's a "flexible ISA" where same-year replacement is allowed). Solution: keep emergency fund in a FLEXIBLE Cash ISA - many providers offer this. Withdrawals during the tax year can be replaced without using fresh allowance. Combine with Premium Bonds (tax-free, instant access) + small easy-access account for true emergencies.
Is the Help to Buy ISA still available?
Closed to new applications November 2019. Existing HTB ISA savers: contribute up to £200/month (£1,000 first month). 25% government bonus on withdrawal for first home purchase up to £250k (£450k London). HTB ISA can be transferred to LISA for higher annual limit + property price cap, but LISA penalty rules may apply on partial withdrawal. Most savers post-2019 use LISA instead.
What happens to Cash ISA on death?
Two beneficial provisions. (a) Spouse / civil partner inheritance: the surviving partner gets an "Additional Permitted Subscription" (APS) - allowing them to deposit an amount equal to the deceased's ISA balance into their own ISA, ON TOP of their normal £20k allowance. Preserves the tax shelter for the family. Apply via the receiving ISA provider. Time limit: 3 years from death OR within 180 days of estate administration completing. (b) "Continuing" ISA status: the deceased's ISA continues to grow tax-free during administration period (up to 3 years), benefitting the estate. Other inheritors don't get APS - just spouses / civil partners.
Related guides
- UK Personal Savings Allowance 2026/27 - £1,000 / £500 / £0 bands.
- ISA Allowance 2026/27 - £20k annual limit.
- ISA Types Guide - Cash vs S&S vs IF vs LISA.
- UK Emergency Fund Target 2026/27 - flexible ISA for emergency fund.
- UK Premium Bonds 2026/27 - tax-free alternative.