UK Cash ISA vs Taxable Savings (2026/27)
Cash ISA vs taxable savings 2026/27: the balance at which interest exceeds your Personal Savings Allowance, by tax band and rate, plus transfers, FSCS and inherited ISAs.
Break-even tables (balance above which an ISA saves tax)
| Savings rate | Basic-rate (£1,000 PSA) | Higher-rate (£500 PSA) | Additional-rate |
|---|---|---|---|
| 3% | £33,333 | £16,667 | £0 (no allowance) |
| 4% | £25,000 | £12,500 | £0 (no allowance) |
| 5% | £20,000 | £10,000 | £0 (no allowance) |
| 6% | £16,667 | £8,333 | £0 (no allowance) |
Break-even = Personal Savings Allowance ÷ interest rate, assuming all your savings earn the same rate. Below it, interest in a taxable account is already tax-free, so choose on rate alone. Above it, an ISA saves tax on the excess interest. The starting rate for savings (up to £5,000, reduced by non-savings income above the Personal Allowance) can raise the break-even for people on low earnings. Sources: GOV.UK tax on savings interest.
Related guides
- UK Personal Savings Allowance 2026/27 - £1,000 / £500 / £0 by tax band.
- ISA Allowance 2026/27 - £20,000 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.
Frequently asked questions
When does Cash ISA beat a taxable savings account?
When your taxable interest would exceed your Personal Savings Allowance (PSA): £1,000 for basic-rate taxpayers, £500 for higher-rate and nothing for additional-rate. The break-even balance is the allowance divided by the interest rate: at 4% that is £25,000 for a basic-rate taxpayer and £12,500 for a higher-rate taxpayer. If your other income is low, the £5,000 starting rate for savings can make more interest tax-free. Above break-even, an ISA saves tax on the excess. Savings income tax rates rise by 2 percentage points (to 22%, 42% and 47%) from 6 April 2027, which makes the ISA shelter worth more from then (HMRC technical note).
How does the £20,000 ISA allowance work?
In 2026/27 you can put up to £20,000 in total into cash, stocks and shares, innovative finance and Lifetime ISAs. A Lifetime ISA takes at most £4,000 of that, and you can pay into only one Lifetime ISA a year. Unused allowance does not carry over. You can split the allowance across several ISAs, including more than one of the same type, in the same year. Transfers between providers do not use new allowance. A withdrawal only restores allowance if the ISA is "flexible" and you replace the money in the same tax year. From 6 April 2027 the cash ISA limit for people under 65 falls to £12,000 within the overall £20,000 (HMRC policy paper, September 2026).
What types of Cash ISA exist?
(1) Easy-access cash ISA - withdraw at any time, variable rate. (2) Fixed-rate cash ISA - a fixed term at a fixed rate, usually with a penalty for early access set by the provider. (3) Notice cash ISA - withdrawals need advance notice. (4) Lifetime ISA - up to £4,000 a year with a 25% government bonus, for a first home or from age 60; see our LISA guide. (5) Junior ISA - for under-18s, £9,000 a year, the child can take the money out at 18.
Can I transfer an old Cash ISA to a better rate?
Yes - use the ISA transfer process, not a withdrawal. Open the new ISA and complete the new provider's transfer form; if you withdraw the money yourself you lose that part of the tax-free allowance. You can transfer all or part of money paid in this year or in earlier years. GOV.UK says transfers should take no longer than 15 working days between cash ISAs and 30 calendar days for other transfers. Check any early-exit charge on a fixed-rate ISA first - the rate gain may not cover it.
What about FSCS protection?
Cash ISAs with UK banks and building societies are covered by the Financial Services Compensation Scheme up to £120,000 per person per authorised firm, raised from £85,000 in December 2025. Some brands share one banking licence, so the £120,000 limit applies to your combined balances across those brands. Use the FSCS checker to see which brands share a licence before splitting money between them. NS&I products are backed by HM Treasury rather than the FSCS.
Should I keep emergency fund in Cash ISA?
It can work if the ISA is easy-access and "flexible": withdrawals can then be replaced in the same tax year without using fresh allowance (GOV.UK). In a non-flexible ISA a withdrawal is gone for good from that year's allowance. Premium Bond prizes are also tax-free, but there is no guaranteed return.
Is the Help to Buy ISA still available?
No, not for new savers. Existing account holders can pay in up to £200 a month until November 2029 and claim the 25% government bonus until November 2030. The property price limit is £250,000, or £450,000 in London (GOV.UK Help to Buy ISA). If you also hold a Lifetime ISA, only one of the two bonuses can be used for your first home; you can transfer Help to Buy ISA money into a Lifetime ISA (GOV.UK Lifetime ISA).
What happens to Cash ISA on death?
If the ISA holder died on or after 6 April 2018, the ISA becomes a "continuing account of a deceased investor" and stays free of Income Tax and CGT until the executor closes it, the estate is administered, or 3 years after death, whichever is first. It still counts for Inheritance Tax. A surviving spouse or civil partner can also pay in an "additional permitted subscription" on top of their own £20,000 allowance, up to the value of the ISA at death or when it closes. Ask the ISA provider for the deadline that applies (GOV.UK).