You may find your ISA serves your long-term savings goals, while your general cash savings account suits your short-term cash needs. Each account has different benefits, and it's up to you to decide which makes the most financial sense for your circumstances.
Disadvantages: Depending on the ISA account you choose, you may have to commit to locking away your cash for a set amount of time. The interest rates on ISAs can be variable, potentially offering lower returns compared to other savings accounts.
For short-term goals such as an emergency fund or a holiday, ISAs and savings accounts can still be a good place to save up. For long-term savings such as retirement, however, you should consider investing to help your money grow over time.
If you're not paying tax on your savings interest, cash ISAs have no benefit – so many should ditch them for higher-paying standard accounts. That's the message from MoneySavingExpert.com founder Martin Lewis in the third episode of the latest series of ITV's The Martin Lewis Money Show Live.
According to Mr Lewis, the top accounts include Nationwide with eight percent interest and First Direct with seven percent. The episode focused on saving in general, but Martin placed extra emphasis on people improving their savings accounts. He stressed that everyone should have a savings account over five percent.
ISAs lose their tax-efficient status on death. This means the beneficiary will not benefit from tax-free income and growth and might have to declare them in their tax return. In addition, ISAs can form part of your estate. If your estate is liable for inheritance tax, your ISA will be caught too.
You “lose” money if your investments are worth less than the amount you've paid in at the time you decide to withdraw your money. Until you sell your investments, ie make a withdrawal, you still have the same number of shares and their value will keep changing – it might go down further but it also might come up.
Putting money into an ISA
Every tax year you can save up to £20,000 in one account or split the allowance across multiple accounts. The tax year runs from 6 April to 5 April. You can only pay into one Lifetime ISA in a tax year. The maximum you can pay in is £4,000.
If you earn interest outside of an ISA, it'll count towards your annual personal savings allowance (PSA), and you might need to pay income tax on it. With an ISA, the interest you earn doesn't count towards your PSA, which is why your returns are 'tax-free'.
You can invest up to £20,000 in your ISA each year, whether it's a cash ISA, an innovative finance ISA, or a stocks and shares ISA, and you can watch your money grow within your tax-free wrapper, including any income you build up.
Your savings aren't protected from losses if you invest in a stocks & shares ISA. If you put money in a stocks & shares ISA, then invest it in funds, shares or bonds, then it's a 'risk-based investment', NOT savings. So, if the things you invest in don't do well, you could lose money - perhaps even all of it.
You can take your money out of an Individual Savings Account ( ISA ) at any time, without losing any tax benefits. Check the terms of your ISA to see if there are any rules or charges for making withdrawals. There are different rules for taking your money out of a Lifetime ISA.
Normal savings beat cash ISAs for most.
If you won't make this much interest, you won't pay any tax, so should focus on moving your money to the highest interest rate, which is usually in a Top Savings Account.
What's the difference between ISAs and savings accounts? It really comes down to tax. You don't pay tax on any potential returns from ISA contributions, while interest accrued on savings accounts can be taxed if it exceeds the personal savings allowance.
There is no limit to how much money can be in an ISA. The ISA allowance limit applies to how much you can pay in during each tax year (6 April to 5 April the following year). So, as long as you've paid in no more than £20,000 within a single tax year, there's no reason you can't have more than £20,000 in an ISA.
ISAs. ISAs allow you to save up to £20,000 each tax year, with no income tax to pay on your returns. They come in various forms, including easy access and fixed rate accounts, of if you're saving for the long term, a Lifetime ISA could be worth considering.
There will be no Income Tax or Capital Gains Tax to pay up to that date, but ISA investments will form part of your estate for Inheritance Tax purposes.
If you've been using ISAs for a while, make sure you don't lose track of old accounts. Performance of certain types of ISA (like Stocks and Shares ISAs or Variable Rate ISAs) can go up or down dependent on the base rate. That means old ISAs might not be doing as well for your money as they could be.
Restrictions on what you can transfer
You can transfer cash from your innovative finance ISA to another provider - but you may not be able to transfer other investments from it. Check with your provider for any restrictions they may have on transferring ISAs . They may also make you pay a charge.
ISA investments will form part of their estate for Inheritance Tax purposes. Their ISA provider can be instructed to sell the investments and either: pay the proceeds to the administrator or beneficiary of their estate. transfer the investments directly to them.
Since you don't pay tax on interest, income or capital gains in any of these ISAs, you don't need to declare them on your tax return. Unlike pensions, you don't need to wait until you're 55 to access your money.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.