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19 Dec 2021

Is it still worth putting your money into an Isa?

Find out whether the Isa restrictions are worth the potential tax saving

Savers that hold an Isa could collectively see a tax benefit of £3.7bn in income tax savings for the 2021-22 tax year, according to recent HMRC statistics on the estimated cost of tax reliefs.

Money held in Isas won't face income tax when it grows, and if you have an investment Isa you will also not be charged capital gains tax or dividend tax.

However, Isas do come with a fair few rules and restrictions - and cash Isas in particular aren't known for their generous interest rates. So is the tax saving really worth the hassle?

Here, Which? reveals the best cash Isa rates and outlines the Isa rules you need to know before you opt for one of these savings or investment products.

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Best cash Isa rates

The table below shows the top cash Isa rates for fixed-term and instant-access accounts, by order of term.

Account typeAccountAERTerms
Five-year fixed-term cash IsaUnited Bank UK Five-Year Fixed-Rate Cash Isa1.66%£2,000 minimum initial deposit
Four-year fixed-term cash IsaUnited Bank UK Four-Year Fixed-Rate Cash Isa1.36%£2,000 minimum initial deposit
Three-year fixed-term cash IsaUnited Bank UK Three-Year Fixed-Rate Cash Isa1.31%£2,000 minimum initial deposit
Two-year fixed-term cash IsaParagon Bank Two-Year Fixed-Rate Cash Isa1.17%£500 minimum initial deposit
One-year fixed-term cash IsaShawbrook Bank One-Year Fixed-Rate Cash Isa0.93%£1,000 minimum initial deposit
Instant-access cash IsaShawbrook Bank Easy Access Cash Isa0.67%£1,000 minimum initial deposit

Source: Moneyfacts. Correct as of 17 December, but rates are subject to change.

Note that most of these accounts require a fairly high minimum initial deposit, so if you don't have very much to save then you might need to go for an account offering a lower rate.

It's also worth pointing out that all of these rates are lower than their savings account equivalents. For instance, you can earn up to 2.08% AER with a five-year fixed-term savings account; the top-rate one-year fixed-term account pays 1.41%, which is more than what you'd earn if you saved for four years with a cash Isa.

However, the fact that your savings interest will remain tax-free, may be worth sacrificing some interest for, especially at a time when all savings rates are still fairly low.

How can Isas reduce your tax bill?

Savings and investments held outside of Isas are subject to tax if they exceed any allowances you qualify for.

Personal savings allowance

For those with cash savings, the personal savings allowance allows you to earn interest worth up to £1,000 interest tax-free if you're a basic-rate (20%) taxpayer, or £500 if you're a higher-rate (40%) taxpayer.

This allowance can shield most savers from tax on their cash savings, but additional rate taxpayers don't qualify for the allowance and those with large balances or money in fixed-rate bonds that pay interest at maturity rather than annually could get caught out.

However, you can save up to £20,000 in an Isa this tax year and shield your savings from tax no matter how much and when interest is paid.

Capital gains tax allowance

Everyone also receives a capital gains tax allowance of £12,300 for 2021-22, so if you make a gain of £12,600 the extra £300 will be taxable.

If the gain was earned from selling shares, for instance, you could have saved on this tax bill if they'd been held in a stocks and shares Isa, as any gains within an Isa aren't counted for tax.

What's more, keeping savings and investments in an Isa wrapper also means things like dividends, CGT and savings interest won't be added to your overall income. This means you're less likely to be pushed into a higher tax band, which would increase the amount of tax you owe.

What are the Isa rules?

There are several rules and restrictions you'll need to adhere to when saving with any kind of Isa:

Annual allowance

All UK adults receive an annual Isa allowance of £20,000; this is the maximum amount you can pay into either one or several Isas in each tax year.

Cash Isas, stocks and shares Isas and innovative finance Isas all have a maximum deposit of £20,000 - so if you wanted to, you could choose to deposit your entire allowance into one of these kinds of accounts. Or, you could split it between any combination of different kinds of Isas, as long as the total doesn't exceed £20,000.

You can only pay in up to £4,000 per year into a lifetime Isa - this counts towards your Isa allowance. So, if you were to deposit the full £4,000 into a lifetime Isa, you'd have £16,000 left to deposit into other kinds of Isas.

Deposit restrictions

You can only pay into one of each kind of Isa in each tax year. That is, one cash Isa, one stocks and shares Isa, and so on. A lifetime Isa is counted as its own type of Isa, so for example you are able to pay into both a cash lifetime Isa and a cash Isa in the same year.

If you pay money into a Help to Buy Isa (closed to new savers), this counts as a cash Isa - so you wouldn't be allowed to pay into an alternative cash Isa in the same tax year.

However, there's no limit on the total number of Isas you're allowed to hold. So, you could feasibly open and pay into a new cash Isa, stocks and shares Isa, and innovative finance Isa every tax year if you wanted to - but it might be difficult to keep track of where your money is.


If you've already paid into one type of Isa, but have since spotted another account you'd like to use, you can make an Isa transfer. In this case, you'd need to transfer the entire sum that's been paid in the current tax year - and it's possible to move money that's been deposited in previous tax years, too.

This way, you're not breaking the deposit rules, and you don't have to miss out on accounts that might suit you better.

It's important to let your new provider organise the transfer, rather than withdrawing the cash and making the move yourself - if you do this, removing the money from the Isa 'wrapper' means it could be subject to tax.

Before moving to a new provider, make sure you check the terms and conditions thoroughly as they often have their own additional rules.

Should I save with an Isa?

This really depends on your circumstances. Isas have the potential to save you a lot of tax, but they're not for everyone.

For someone who owns a number of valuable assets or property they're planning to sell, it makes sense to hold investments in a stocks and shares Isa so that any you dispose of won't be added to your capital gains tax bill.

Equally, if you own company shares the £2,000 dividend tax allowance might not be enough to shield you from tax - making a case for holding these shares in an Isa.

Isa savings are also a good idea for those with high incomes and/or large sums to save. That's because those who fall into the higher-rate tax bracket only receive a £500 personal savings allowance, while additional-rate taxpayers don't have any allowance at all.

Couple this with savings that accrue a lot of interest, and your tax bill could grow - unless your money is held in an Isa.

However, Isas can also help those who are saving over a long period of time - even if they're basic-rate taxpayers and don't expect to come under the scope for CGT or dividend tax.


John is an employed worker who earns £30,000 a year. He has one savings account that pays 0.6% AER.

As a basic-rate taxpayer, John receives a personal savings allowance for each tax year. With his account paying such little interest, this would mean he'd need savings of around £165,000 to get anywhere close to exceeding this allowance in the course of one year.

Given his income, it's unlikely John would have such a sum stashed away, meaning an Isa might not provide any tax benefit to him.

That being said, if John waited until he had £165,000 saved to even start thinking about saving with an Isa, he'd possibly be a bit stuck, as you can only pay in up to £20,000 each year. Such a large sum would have to be moved across nine tax years if you wanted to pay all of it into an Isa.

What's more, if John got a pay rise in the future and was brought closer to the higher-rate tax threshold, his savings income might well push him into a higher tax bracket, which would then reduce his personal savings allowance and mean an increase to his tax bill.

This article was updated on 22 December 2021 to amend our example to say that John earns £30,000 a year.