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Published: 16 May 2023

If you're looking for a place to grow your savings, a Cash ISA might provide a solution. It’s the most popular type of ISA in the UK.

But why are Cash ISAs so popular? How does a Cash ISA work? And what’s important to know before you open one? To clear things up, we've put together this short guide.

What is a cash ISA?

A Cash ISA is a form of Individual Savings Account (ISA) that works much the same as a regular savings account but with one key difference, your ISA allowance, which allows you to earn tax-free interest on your savings.

You can get Cash ISAs that offer fixed or variable interest rates and the level of access you have to your savings can also differ between different Cash ISA products.

Cash ISAs can provide a solution to suit your saving goals dependent on what your goals are. There are plenty of alternatives to Cash ISAs, too, and you can find out whether it's the right type of savings account for you below.

How much can I put in a Cash ISA?

Currently, the ISA allowance for most forms of ISA, including Cash ISAs, is £20,000 per tax year. Once the tax year refreshes on 6 April, your allowance resets, so the £20,000 allowance starts again and you can continue to earn interest. You can spread your allowance across different types of ISA, for example you can hold and deposit into a Cash ISA and Lifetime ISA within the same year.

What happens if I go over my ISA allowance?

Any money that exceeds the £20,000 allowance for the year will be subject to your normal taxpayer rate.

If you're a basic or higher-rate taxpayer, you also have a personal savings allowance (PSA) that allows you to earn up to £1,000 (basic) or £500 (higher) interest tax-free. Additional-rate taxpayers don't get any PSA, so will pay tax as soon as they exceed the £20,000 allowance. The tax-free interest from your ISA doesn't count towards your PSA.

If you do end up exceeding your ISA allowance and any PSA applicable to you, you'll pay the following tax rate:

  • Basic-rate taxpayers (after exceeding PSA of £1,000): 20%
  • Higher-rate taxpayers (after exceeding PSA of £500): 40%
  • Additional-rate taxpayers: 45%

Is my money secure in a Cash ISA?

Any Cash ISA that you open is protected by the Financial Services Compensation Scheme (FSCS). The FSCS covers a maximum of £85,000 per building society, bank or credit union. You may seek independent financial advice to find out what suits your individual circumstance.

Can you have a Stocks-and-Shares ISA?

Just as you can have more than one Cash ISA open at once, you can also have a Cash ISA and a Stocks-and-Shares ISA open at the same time.

Your ISA allowance allows you to invest in one of each type of ISA per year, so you can put money into both a Cash ISA and a Stocks-and-Shares ISA in the same year. Your ISA allowance of £20,000 applies across each type of ISA that you have.

Who can get a Cash ISA?

You can get a Cash ISA if:

  • You live in the UK or you're working abroad as a crown employee or their partner.

  • You're 18 or over. 

Depending on the type of Cash ISA that you choose to suit your needs and circumstances, there will also be conditions on opening and maintaining the account, such as:

  • A minimum opening and operating balance: this is the amount that you need to open the account and maintain throughout to keep your interest rate. With our Cash ISAs, that's anywhere from £1 to £5,000.

  • Access: some accounts have access restrictions on them which limit the number of withdrawals you can make. If you surpass your agreed withdrawal limit, you'll potentially lose interest on the account.

  • Account opening type: its best to check if your account is operated online, in branch, or by post

What are the different types of Cash ISA?

Fixed Rate Cash ISAs

With a Fixed Rate Cash ISA, you get a fixed or similar rate of interest on your savings for a set amount of years. You'll commit to putting away your money for a set period - one, two or three years, for example. During that time, withdrawals may incur an interest penalty, so you need to be ready to put your money away without touching it for the agreed duration of the fixed rate period or you will incur an interest penalty.

With Fixed Rate Cash ISAs, you'll typically get a higher interest rate on your savings compared to other types of Cash ISA.

Variable Rate Cash ISAs

Variable Rate Cash ISAs offer a variable rate of interest on your savings. That means that your interest can go up or down while you hold the account.

There are various feature differences in Cash ISA’s. While Fixed Rate Cash ISAs may restrict withdrawals, Variable Rate Cash ISAs may offer differing levels of access. Either:

  • Unlimited/instant: you can make as many cash withdrawals as you want.

  • Limited: you're allowed to make a pre-agreed number of withdrawals per year. If you exceed that number, you'll face an interest penalty on your account.

What are the benefits of a Cash ISA?

There are a few reasons why so many people put their savings into a Cash ISA:

  • You'll earn tax-free interest on up to £20,000 of savings per tax year.

  • It's a place to earn tax-free interest if you've used up your personal savings allowance (PSA) or don't have one.

  • There's a lot of variation in account types.

  • You have FSCS protection on up to £85,000 of your savings.

  • You can transfer money from previous tax-year ISAs, allowing you to consolidate all of your savings in one place, making Cash ISAs suitable for both short- and long-term savers.

Please also bear in mind the following non-exhaustive list:

  • Your ISA allowance means you can earn tax-free interest on a maximum of £20,000 each tax year. If you’ve any spare allowance for the year, it doesn't roll over to the new year.

  • If you access your money but have withdrawal restrictions on your account, you'll face an interest penalty on your savings.

What is the best Cash ISA for me?

The best Cash ISA for you depends entirely on what you need from a savings account. You'll want to think about:

  • If you can put your money away for a set amount of time.

  • What level of access to your money you need while you hold the account.

  • For how long you want to save.

  • Whether you want a fixed or variable rate of interest.

If you have any questions about our range of Cash ISAs, you can always get in touch with us and speak to a member of the team.


This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.

Cash ISAs are available to individuals aged 18 or over who are resident in the UK for tax purposes. 

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