Insights for Savers

Cash ISA vs savings account: what’s the difference?

Savings 3 min read 12/02/2026

When you’re saving money, a very common question is: “Should I put my money in a Cash ISA or a savings account?”

Both options help your savings grow, but they work differently, especially when it comes to tax, access, and how you plan to use your money. Knowing the differences helps you choose what’s best for your financial goals in 2026.

This guide clearly explains how Cash ISAs and savings accounts compare, with simple examples and practical advice.

 

What is a Cash ISA?

A Cash ISA (Individual Savings Account) is a type of savings account where the interest you earn is completely tax-free, no matter how much interest you make.

In the 2026/27 tax year, you can put up to £20,000 into ISAs, including Cash ISAs, and keep all interest free from tax. That makes Cash ISAs very useful for long-term, tax-efficient saving.

What is a standard savings account? 

A standard savings account is a regular account with a bank or building society. It pays interest, but that interest is not automatically tax-free.

Instead, the tax you pay on savings interest depends on your income and the Personal Savings Allowance (PSA).

 

Tax-free interest vs Personal Savings Allowance

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Understanding tax is one of the biggest differences between the two.

Personal Savings Allowance (2026) 

  • Basic-rate taxpayers: £1,000 interest is tax-free
  • Higher-rate taxpayers: £500 interest is tax-free
  • Additional-rate taxpayers (45%): No PSA

Once you go over your PSA, the rest of your interest is taxed at your income tax rate.

 

Cash ISA advantage

With a Cash ISA:

  • All interest is tax-free with no limit
  • You never pay tax on interest earned
  • You don’t have to declare ISA interest on your tax return

That can be especially helpful if you have larger savings or higher tax rates.

 

How do interest rates and access differ? 

Both Cash ISAs and standard savings accounts come in different forms:

Cash ISA features may include:

  • Tax-free interest
  • Flexible withdrawals (Easy Access ISA)
  • Notice periods for higher rates (Notice ISA)
  • Reward rates for disciplined savers

Savings account features may include: 

  • Competitive interest rates (sometimes with bonuses)
  • Instant access options
  • Fixed-term options with guaranteed returns
  • Tiered rates based on balance

With standard savings accounts, the headline rate might be higher, but the real return depends on whether you pay tax on your interest.

 

When a Cash ISA may be more suitable

A Cash ISA could be right for you if:

  • You want all interest tax-free
  • You have larger savings that may exceed your PSA
  • You’re saving for medium- or long-term goals
  • You prefer certainty and simplicity with tax treatment

Cash ISAs are ideal for many savers who focus on long-term growth without worrying about tax.



When a standard savings account may be enough

  • A standard savings account could be better if:
  • Your savings are small enough to stay within your PSA
  • You need easy and instant access to your money
  • You’re saving short-term or building an emergency fund
  • You want access to specific bonus or promotional rates

Savings accounts can be very attractive, especially when flexibility or higher short-term rates matter most.

 

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How to choose between them

Choosing between a Cash ISA and a savings account comes down to your personal situation, including your tax status, how much you’re saving, and how you plan to use your money.

 

Some people even use both together

  • A Cash ISA for long-term, tax-efficient savings
  • A standard savings account for short-term access and emergency funds

That balance can help you get the best of both worlds.

 

Savings options from Aldermore

At Aldermore, we offer both Cash ISAs and savings accounts to suit different goals:

Cash ISAs

 

Personal savings accounts

Explore our range of standard savings accounts for flexibility and competitive returns.

Whether you’re starting your savings journey or planning how to use your ISA allowance, Aldermore can help.

 

Explore our savings range