What’s a cash ISA?

What’s a cash ISA and how is it different from a regular savings account?

A cash ISA is a type of Individual Savings Account (ISA). Similar to a savings account, you add money to it and earn interest on that money but there are benefits when it comes to tax.

With a regular savings account, you have to pay tax on any interest earned over your Personal Savings Allowance, whereas with an ISA, you generally won’t pay tax on any interest earned, depending on your personal circumstances. 

The main thing to remember with cash ISAs is the annual ISA allowance, which limits how much you can contribute each tax year (currently £20,000).

What are the types of cash ISA?

There are different types of cash ISA, and the right one for you will depend on how accessible you need your money to be. The main types are instant access, easy access and fixed. 

Instant access means you can access your savings straight away, and there are typically no restrictions on how much or how often you can withdraw.

Easy access is similar, but there might be restrictions on how many times you can withdraw money over a set period and how quickly you can withdraw your money.

Instant and easy access ISAs are a good choice if you need your money at short notice, but remember that if you withdraw money, the original deposit still counts towards your ISA allowance of £20,000 per year, unless the ISA is flexible.

If your ISA is flexible, it lets you withdraw and replace money in the same tax year without affecting your allowance, so long as it’s re-deposited with the same provider. 

Fixed-term means your money’s locked in for a set period of time – often 1,2,3 or 5 years. You can still withdraw it if you need to (all cash ISA providers must let you access your money whenever you want), but there might be a fee attached.

Fixed-term ISAs can be a great option if you’re saving for something specific in the future, like a wedding or holiday. 

Is my money safe in a cash ISA?

As you’re not investing with a cash ISA, your money’s not at risk, so you’ll get back what you deposited, plus interest. 

When choosing an ISA provider, make sure they’re registered with the Financial Services Compensation Scheme (FSCS). If they are, your eligible deposits will be protected up to a total of £85,000. 

Can I have more than one cash ISA?

Yes, you can open as many cash ISAs as you want, with as many providers as you want! However, your yearly deposits mustn’t exceed the annual ISA allowance, which is currently £20,000. 

What’s the difference between a cash ISA and a stocks & shares ISA?

With a cash ISA, you’re guaranteed to get your original deposit back, plus interest. With a stocks & shares ISA, your money’s invested and therefore at risk. You can often earn more in returns over the longer-term in a stocks & shares ISA, but you could also get back less than what you put in if the market drops, or even lose all your money. 

Stocks and shares can be volatile in the short term, and so investment is generally better viewed as a long-term strategy. If you want to withdraw your savings within 5 years and don’t have time to ride out any drops in the market, knowing your savings won’t dip can give you peace of mind.

Is a cash ISA right for my savings?

Cash ISAs are a good option for short to medium-term savings goals (under 5 years) and for people who prefer to take less risk.

If you’re planning on saving over a long period with a cash ISA, your money could have less real world value. For example if you had £20,000 saved towards a house deposit in 2015, and you were earning 3% interest a year, by 2025 you’d have £26,987. But £27k doesn’t buy you as much house in 2025 as it would have in 2015 (house prices have risen by about 50% over the last 10 years).

Depending on what you’re trying to achieve, there will be different options to suit your goals and the amount of risk you’re comfortable taking.

This isn't financial advice or personalised to you, and we're not recommending or suggesting you take any particular action. If you're in any doubt about what's right for you, then speak to an authorised financial advisor. Tax treatment depends on individual circumstances and may change in the future.

The value of your investment can go up and down and you could get back less than you put in.

We offer instant access cash ISAs and stocks & shares ISAs to help you reach your savings goals. Ready to open an ISA? Check out our savings page. 

You need a Monzo Current Account. Ts&Cs apply. 18+ & UK residents only. You could get back less than you invest.