Best Cash ISAs – Why you might consider alternatives

Antonia Medlicott

Cash ISAs are tax-free savings accounts, meaning you will never pay tax on the interest you earn. However, with dismally low-interest rates, and rising inflation, are these really the best way to save and where can you find the best interest rates?

In truth, there are very few cases where saving into a cash ISA is the best way to grow your savings. Low-interest rates and high inflation will actually erode away at the value of your savings over time and since the introduction of the Personal Savings Allowance, basic rate taxpayers won’t pay tax on the first £1,000 of interest they earn anyway.

As an alternative, you may want to consider one of these recommended stocks and shares ISA providers below.

Top 4 ISA alternatives to cash ISAs in May 2024

Discover my top cash ISA alternatives below, be sure to read about each provider in detail before making a decision.

Top Cash ISA alternatives at a glance

Interactive Investor logo

Interactive Investor

  • The number one choice for UK Investors
  • ISA options available from £25 per month

If you are a DIY investor who plans to build a diversified portfolio from a range of individual stocks and funds, then interactive investor is the best platform to meet your needs.

Here, you can access more than 40,000 UK and international investment options, and the trading app provides plenty of functionality for managing your portfolio.

Important information - investment value can go up or down and you could get back less than you invest. If you're in any doubt about the suitability of a Stocks & Shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

Hargreaves Lansdown logo

Hargreaves Lansdown

  • 100% guarantee – Fees refunded if not satisfied.
  • Pick your own investments or choose a ready-made portfolio.

With a Hargreaves Lansdown ISA, you have access to 2,500 different funds, shares, and trusts. You can also access shares in Europe, the United States, and Canada. The number of investment options is attractive to hands-on traders, but if you are new to the product or prefer to rely on Hargreaves Lansdown’s advice, you can also take advantage of their Portfolio Management Service with one of six ready-made investment portfolios.

As with any investment the value can go down as well as up. Past performance is no indicator of future performance. The tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.

InvestEngine logo


  • Transfer existing ISAs for free
  • Zero ISA account fees

If you are looking for a low-cost, simple way to invest, then look no further than InvestEngine. Here, you can invest in a choice of 500+ ETFs for as little as £1.

Exchange Traded Funds (ETFs) are actually a lot simpler than they sound. They are merely a mix of assets, including commodities and shares, that aim to track the performance of a stock market. They make investing a breeze and are diversified, which can help reduce your risk.

With investment, your capital is at risk. This could mean the value of your investments goes down as well as up.

Circa5000 logo


  • Best impact investing stocks and shares ISA for the ESG conscious investor
  • Low £1 per month fee

The Circa5000 ISA provides you with the platform from which to invest in shares, funds and bonds, tax-free, in the United Kingdom, up to £20,000 per annum. There is no fee for using the Circa5000 ISA and it provides a tax-efficient way of holding your Circa5000 investment.

Capital at risk.

What is a cash ISA?

If you are resident in the UK and over the age of 16 then you are eligible to open a cash ISA.

In the UK, residents are charged tax on all income, and this includes interest earned on their savings. There are however exceptions to this, and everyone can avoid this tax as long as they are earning under a certain threshold, or, they have their savings in an ISA account. ISA stands for Individual Savings Account and within Cash ISAs, you can earn interest on your savings without having to pay any tax on that interest.

At the start of each tax year, everyone is entitled to a Cash ISA allowance. This is a sum of money, as stipulated by the government, that you are entitled to pay into an ISA in that financial year. For the year 2021/22 this amount is £20,000.

Should you fail to use your allowance in any one year, this amount is lost to you, there is no option to carry it forward into the next year. Anything over and above this amount will not be tax-free.

Who is a Cash ISA best suited to?

The group of people who would benefit the most from a cash ISA is additional-rate taxpayers (those who earn in excess of £150,000 a year) as this group are not entitled to any personal saving allowance.

In addition to this, anyone who is lucky enough to be earning over £1,000 (£500 for higher rate taxpayers) in savings interest each tax year would benefit from a cash ISA.

Different Types of Cash ISA

There are a variety of Cash ISAs on offer to suit your individual needs including

Easy Access cash ISAs

With Easy Access Cash ISAs, you can withdraw your money whenever you want without incurring any kind of charge or penalty.

They offer full flexibility which is great if you need regular access to your tax-free savings, however, the flip side is that you will often get a lower interest rate with Easy Access ISAs. This is often referred to as an Instant Access ISA.

Regular Saver cash ISAs

A Regular Saver ISA will usually reward savers with a higher interest rate in exchange for a commitment to deposit a fixed sum of money into your ISA account each month.

Regular saver ISAs will usually restrict access to your account for 12 months.

Also consider: Will ISA rates go up?

Junior cash ISAs

A Junior ISA allows you to save for your child with a maximum deposit of £9,000 in any one tax year.

Every child under the age of 18 is entitled to one Junior ISA account as long as they are resident in the UK.

Notice cash ISAs

A Notice ISA can have an attractive tax-free interest rate however, they require advance notice should you wish to withdraw your money.

Fixed Term cash ISAs

A Fixed Term ISA can offer some of the best interest rates available, however, you will not be able to access your money for the duration of the term.

You can choose to keep your money in a one-year fixed rate ISA, however, the interest rate for a two-year fixed rate ISA is often more lucrative and if you are able to commit to a five-year fixed rate ISA then you can enjoy an even higher interest rate.

Lifetime ISA

Lifetime ISAs are products designed to help savers put money aside for their first home.

You have the option of depositing up to £4,000 per tax year and the Government will add an additional 25% of what you deposit up to the value of £1,000 per year.

There is limited access to this account and you will only have the option to withdraw on the purchase of your first home, or when you turn 60 years old. Outside of these reasons any withdrawals will incur a 25% charge.

Help to Buy ISA

Help to Buy ISAs are now only available to existing account holders.

Like the Lifetime ISAs, they receive a 25% bonus from the government and are designed to help savers buy their first property.

Best easy-access Cash ISAs

An Easy Access Cash ISA is the perfect saving vehicle for additional rate taxpayers who may need to dip in and out of their savings, providing flexibility without incurring any penalties that will ultimately eat into gains.

You should take the time to check whether your bank or building society have an ISA on offer and what rate they are currently offering.

Please note: Rates correct at 08/09/2022. Please check the latest rates with individual providers.

Provider AER Account Opening Min. Opening Balance Transfer In?
Cynergy Bank 1.65% Online £1 Yes
Teachers BS 1.65% Online or by Post £100 Yes
Skipton Building Society 1.60% Online £1 Yes
Tipton & Coseley 1.45% Branch or by Post £1000 Yes

Best one-year and two-year fixed rate cash ISAs

When considering whether to put your money into a Fixed Rate Cash ISA you should first be aware that should the interest rate increase, you won’t benefit until the end of the term of the ISA. Therefore, if the interest rate is at an all-time low (such as they currently are) then you won’t be able to take advantage of any increase that may occur. Also, a one or two-year fixed rate Cash ISA will also carry penalties should you need to withdraw your money before the end of the term. Therefore you will need to be sure you are comfortable with your money being tied up.

Best one-year fixed rate cash ISA

Provider AER Min. Opening Balance Transfer In?
Virgin Money 2.62% £1 Yes
Darlington BS 2.6% £1,000 Yes
Hodge Bank 2.56% £1,000 Yes

Best two-year fixed rate cash ISA

Provider AER Min. Opening Balance Transfer In?
Virgin Money 3.02% £1 Yes
Darlington BS 3% £1,000 Yes
Loughborough BS 3% £20,000 Yes

Compare Cash ISAs

When measuring up one provider against another there are obvious things to ask yourself such as:

  1. Does the provider have a high street presence?
  2. Is the provider offering a cash incentive for opening an account?
  3. Is it important to you that you are already familiar with the provider?
  4. Does the provider supply a mobile app for managing your account?
  5. Does the provider have other savings vehicles that may be of interest to you?
  6. Can you open the account online?
  7. What is the minimum deposit?
  8. What are the penalty fees for early withdrawals on fixed-term cash ISAs

It is also worth checking TrustPilot for independent reviews from existing customers which can provide valuable insights into factors such as customer service.

5 Cash ISA Need-to-Knows

Many people make the mistake of thinking that a Cash ISA is the best solution for everyone who wants to save money. However, before you put your money in a Cash ISA you should consider the following:

  1. In the basic tax band, only savings that generate interest of over £1,000 per annum will be taxed, anything under that comes as part of your Personal Savings Allowance and is tax-free. If you fall under this amount then you may want to consider a Stocks and Shares ISA or a regular savings account which will often offer better returns than you will find at any Cash ISA.
  2. If you already have a Cash ISA then it is worthwhile checking that you are still taking advantage of the best interest rate available as you can shop around and transfer your ISA for greater gains if not.The important thing to remember here is that you should NEVER withdraw your ISA in order to change providers. This is because once your money is withdrawn it will lose all its tax benefits and depositing it into another provider will count towards your annual ISA allowance. Check that any transfer fees won’t counteract any benefits to be had from the increase in interest rates at another provider.
  3. If you are not sure whether you will need to withdraw your money then it is worth finding an ISA provider that is flexible. This means that you can withdraw your money without incurring a charge, and replace it, without it affecting your annual ISA allowance.
  4. If you are saving for your first home, or saving for your retirement then it is a good idea to consider a Lifetime ISA so you can take advantage of the 25% bonus offered by the government. Lifetime ISAs are only available to savers between the ages of 18 and 39 and you can only save a maximum of £4,000 per tax year into your ISA. Ensure you are familiar with all the penalties associated with a Lifetime ISA first.
  5. The annual ISA allowance for 2021/22 is £20,000. It is important to use as much of your allowance as you can in order to protect your money from tax. Remember, any unused allowance is lost to you and can never be recovered.

Useful information about Cash ISAs

All your cash ISA questions answered in one handy place.

What is the personal savings allowance?

The personal savings allowance is an amount of income generated from savings interest that each UK resident is entitled to receive, each tax year, without it being subject to any tax. For a basic-rate taxpayer, this means you can earn up to £1,000 interest per year without paying tax on it. Higher-rate taxpayers are entitled to £500 of interest income tax-free.

Can I carry over my unused allowance from the previous year?

In short, no. Any unused allowance is lost once that financial year has passed.

Is my money safe in a Cash ISA?

A Cash ISA works very much like a normal savings account but with the added bonus of not paying tax on any income generated. This means you are guaranteed to get back what you put in, plus any interest earned. Most providers are also authorised and regulated by the Financial Conduct Authority and covered by the Financial Services Compensation Scheme (FSCS) which protects your money from the provider going bust, up to the value of £85,000. In order to offer an ISA within the UK, the provider must also be registered in England.

What’s the difference between a Cash ISA and a Stocks and Shares ISA?

A Cash ISA lets you save money and earn interest without having to pay tax on any of your interest earnt. A Stocks and Shares ISA is a tax-free vehicle from where you are able to invest your savings. With a Cash ISA, you are guaranteed to get your deposit back plus any interest you have earnt, however, with a Stocks and Shares ISA there are no guarantees and you risk losing all your money. Despite the associated risk, investing your money has historically provided better returns than a Cash ISA.

What is an Innovative Finance ISA?

An innovative finance ISA is a platform from which you can make peer-to-peer lending investments tax-free.

Can I withdraw my money from my ISA account?

This very much depends on the type of Cash ISA you have. An Easy Access Cash ISA will allow you to dip in and out of your savings whenever you like, however, these Cash ISAs often offer the lowest interest rate. Flexible ISAs will also allow you to take money in and you can deposit the money back into your ISA accounts without affecting your ISA allowance for that tax year.

Can I have more than one ISA?

The short answer to this is yes, however, there are certain limitations that you will need to adhere to. You can only have one current year’s cash ISA open at any one time, so while you are fine to hang on to your old Cash ISAs from previous years, you can open a new ISA each year. You are also permitted to have different types of ISA open in any given year. The main stipulation is that regardless of how many Cash ISAs you have, you still need to stay within the ISA allowance across all your ISA accounts when depositing.

Is it really worth saving into an ISA with the rates being so low?

The first thing to ascertain is whether you are earning above the personal allowance from interest on your cash. If the answer is yes, then it is certainly worth protecting your returns from the taxman. However, with interest rates being so low, you may want to consider the merit behind saving your cash in a high-interest account and then transferring the full amount into your Cash ISA just before the end of the tax year. This way you can take advantage of the additional earnings from the higher rate, and still protect your interest from the taxman.

What’s the difference between a bank and a building society?

The main difference between a bank and a building society is that a bank is operating on behalf of its investors whereas a building society is a mutual institution, meaning that a building society is owned by, and working for, their customers. The result of this is that the interest rate offered by a building society tends to be higher than that offered by a bank as they are not required to pay dividends to any of their shareholders. A building society tends to offer all the same products as a bank, however, they often operate on a regional basis so it is worth checking if you are actually eligible to open an account.

Can I swap my instant access ISA for an Investment ISA?

Yes, during times of low-interest rates, it is often more lucrative to invest part or all of your savings. Therefore you are at liberty to transfer part or all of the cash in your Instant Access ISA to an investment ISA.

Are interest rates better in regular savings accounts?

Yes, it is often the case that savings accounts offer a better interest rate than a Cash ISA, however, you should remember that any interest you earn in savings accounts will be subject to tax. To put this into perspective, additional rate taxpayers will pay £45 in tax for every £100 interest they earn in a normal savings account. Conversely, in an ISA you will get the full £100, and therefore, normal savings accounts would have to be 82% higher in order to yield better returns than Cash ISAs even with today’s low ISA rates.

Can I transfer several old ISAs into one ISA with a better interest rate?

Yes! And you should. Consolidating all your ISAs into one with a better interest rate is a great way to increase your earnings. Often providers will cut interest rates on the money you have saved previously so it’s best to check that you are still getting the best interest rate on offer.

Also consider: Will interest and savings rates rise in 2022?

Best Cash ISAs FAQs

Do I pay tax at the usual rate if I withdraw my money from my ISA?

Yes. The moment you withdraw your money from your ISA it loses its tax-free status and anything over the personal savings allowance will be subject to tax.

Is there any protection for funds over and above the amount covered by the Financial Services Compensation Scheme?

Not within the one provider, however, if you are over this amount, then you could opt to spread your ISAs over different providers in order to ensure you are covered by the Financial Services Compensation Scheme in each ISA.
You might also like...
*Capital at risk
Try ii for ISAsVisit Site