8 questions about cash Isas answered

If recent headlines about cash Isas have left you puzzled, you're not alone

These tax-free savings products have been around for 25 years, but a shake-up last year and rumours that another overhaul is on the way may have made some savers unsure what they actually offer today. 

So, whether you're a cash Isa novice or seasoned saver, we answer eight key questions to help you make sense of them now. 

1. What is an Isa?

The term Isa stands for 'individual savings account'. Isas allow you to save up to £20,000 tax-free every year.

Savers currently have a choice of four types of adult Isa, including cash Isa, stocks and shares Isa, innovative finance Isa and the lifetime Isa. There's also a Junior Isa for children. 

The most popular product is the cash Isa, which works much like a regular savings account. Providers offer a mix of instant-access and fixed-term deals, making them a good choice for short to medium-term savings goals. 

• Find out more: what is an Isa?

2. What is the best cash Isa rate?

The table shows the top rates currently available on instant-access and fixed-term cash Isas, ordered by term. 

We've excluded deals that come with opening restrictions - for example, requiring you to already have a bank account with the provider. 

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• Find out more: best cash Isas 2025

3. How does the tax-free allowance work?

The £20,000 tax-free allowance resets every year on 6 April. You can transfer the full balance of a previous year's Isa (including interest earned) or just a portion of it, without affecting your current year's allowance. 

For example, let's say you opened a one-year fixed cash Isa paying 5% AER this time last year and maxed out your allowance for 2024-25. 

The £1,000 interest earned over the account's 12-month term won't eat into allowance for this financial year. It means you have another £20,000 to play with, and your pot could be worth a total of £41,000, plus interest, by April 2026.

Here are a few savvy tips to help you make the most of your tax-free allowance:

• Max out early: Consider using your full allowance at the beginning of the financial year. This not only removes some of the pressure to make a hasty decision in the run-up to April, but means your cash will be put to work for longer.
• Save little and often: If you don't have £20,000 to deposit as a lump sum, think about setting up a standing order to ensure you're spreading payments into an Isa over the course of the year and not missing out on your allowance. 
• Don't forget your partner: If you've used up your annual Isa allowance but your partner hasn't, you can pay into their account instead, effectively increasing your shared Isa allowance to £40,000.  
• Kids get an allowance too: If you want to save for your child, you could also open a Junior Isa on their behalf. Junior Isas have an annual allowance of £9,000.

Read our guide to find out more about cash Isa allowance rules.

4. When should I open a cash Isa?

Isa rates tend to get a boost during two key periods each year.

The first 'Isa season' runs from January to March, as the end of the tax year approaches and savers rush to use their remaining allowance. The second is in April, when the new financial year begins and allowances reset. 

 One word of warning: competitive rates and their timings aren’t guaranteed. With the savings market so volatile, providers can change their deals at any time. 

5. Can I have more than one cash Isa?

New rules that came in from 6 April 2024 mean it's now easier than ever to move between different providers and get the best deal.

You can now open and pay into more than one cash Isa in the same tax year. Previously, you were limited to paying into just one of each Isa type per year.

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6. Is a cash Isa safer than investing?

The Chancellor has encouraged savers to consider putting their money into an investment Isa. These accounts let you buy and hold shares, funds and other types of investments.

While both cash and investment Isas offer the same tax-free benefits, the potential returns and risks are very different. Investment Isas are better suited to long-term growth, but because markets can fluctuate, your balance may fall at times. 

The risk, however, is that some or all of the money you're saving could be lost if investments don't perform well. For example, company shares tend to be more volatile than lower-risk assets such as bonds. 

• Find out more: best stocks and shares Isas 2025

7. Can I inherit cash Isa savings?

Yes, you can. Since April 2015, spouses and civil partners can pass on their Isa savings tax-free when they die.

The surviving partner is entitled to an 'additional permitted subscription' (APS) allowance. This is a one-off additional Isa allowance equivalent to the value of the deceased person's Isa at the time of death.

• Find out more: can you inherit an Isa?

8. Could the cash Isa allowance be cut?

Rumours of major cash Isa reforms have been swirling since the Spring Budget announcement in March.

Rachel Reeves has made it clear that the government wants more people to invest rather than save in cash, prompting speculation that the cash Isa allowance could be cut to encourage this shift in behaviour. 

However, during her recent Mansion House speech, Reeves sought to calm concerns, announcing a wider consultation on how best to boost uptake of stocks and shares Isas. 

That said, the government hasn't ruled anything out, and further changes could still be announced in the Autumn Budget. 

• Find out more: cash Isa allowance saved for now