Cash ISA vs Savings Account: Which Is Best in 2026?

A mature couple are looking intently at a tablet computer as they drink coffee at a courtyard table

By Rachel Lacey | Published - 31 Mar 2026

Important info

This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.

Cash ISAs are often presented as the default choice for your savings, as your money will be sheltered from tax.

But despite increasing numbers of older people starting to pay tax on their savings, a cash ISA might not always be best home for your money.

Read on to learn more and find out what type of account will deliver you the best returns.

What’s on this page?

Different products suit different savers
The case for traditional savings accounts
The case for cash ISAs
Cash ISAs v savings accounts
Looking ahead

Different products suit different savers

All savers want to earn the best rate possible on their cash savings. But while the tax benefits of cash ISAs are not disputed, conventional savings accounts will often pay the highest rates of interest.

This means that cash ISAs shouldn’t always be the default option.

The right account for you will depend on two things:

The amount of money you have in savings
The rate of income tax that you pay (basic, higher or additional rate)

The case for traditional savings accounts

Small to medium balances (up to £20,000)

If you’re a basic-rate taxpayer, the case for using cash ISAs isn’t always compelling. That’s because, you may not need to pay tax on your savings interest anyway, so it’s arguably better to pick the account with the highest rate of interest – irrespective of whether it’s a cash ISA or a savings account.

Adam French, head of consumer finance at Moneyfactscompare.co.uk, explains: “A savings account usually makes sense if the interest you earn stays within your personal savings allowance (PSA). Basic-rate taxpayers can earn up to £1,000 a year in interest tax-free, and many with small to medium savings pots will still be better off chasing the highest headline rate outside an ISA.”

Read more about the personal savings allowance.

For smaller balances, Mark Hicks, director of savings at Hargreaves Lansdown, agrees it’s usually fine to prioritise a good non-ISA account. “Here, ISA versus non-ISA is less critical; rate and access matter more than a wrapper.”

According to research from Moneyfacts from October last year, a saver who pays basic-rate tax, with a ‘typical’ £13,500 in a savings account, would have been £393 better off, had they kept their money in the best one-year fixed-rate bond, rather than the best one-year fixed-rate ISA, over the last six years.

As they weren’t in danger of breaching the PSA, there wasn’t any tax benefit to be gained by sheltering their savings in a cash ISA.

It’s less cut and dried for higher-rate taxpayers. Using the same savings balance (£13,500) and the same accounts, they would have saved £282 in tax with the ISA, but would still be £7 better off overall with the higher-paying savings account.

Based on current ‘best buy’ one-year fixed bond (4.51%), a basic-rate taxpayer could hold £22,173 in savings before they would breach their £1,000 PSA and start paying tax on savings. For a higher-rate taxpayer with a £500 allowance that drops to £11,087.

But Alice Haine, personal finance analyst at Best Invest, says some savers on low incomes will have a bigger tax-free saving allowance. “People who get the starting savings rate – which allows up to £5,000 of savings interest to be earned tax-free for those on low-incomes, in addition to their £1,000 PSA – have even more wiggle room, so again a conventional savings account can make sense.”

For some savers it may also pay to keep easy-access savings – your rainy-day pot that you will likely dip into – in a non-ISA account. That way you can keep your ISA allowance to shelter your tax-free allowance for longer-terms savings, whether that’s in a cash or stocks and shares ISA.

Hicks says: “Non-ISA savings accounts remain the right home for your ‘liquidity slice’ – typically three to 12 months’ expenditure, plus known near-term spending. Above that, wrappers and tax drive the decision: high earners and larger balances will usually want a greater proportion in ISAs or other tax-sheltered vehicles [for example pensions] but still using non-ISA easy access for ‘operational’ cash.”

2) Bigger balances (over £20,000)

The more money you have saved, the more likely you are to pay tax on your interest and the less attractive ordinary savings accounts become.

But the tipping point might be higher than you expect.

Even if you’re a basic-rate taxpayer and you’re breaching the PSA, you could still be better off with a competitive savings account.

The Moneyfacts research found that a basic-rate taxpayer with a £50,000 balance, would still be £59 up over six years with a savings account, despite a £1,200 tax saving with an ISA. This is thanks to the savings account paying a higher rate of interest.

Another advantage of savings accounts is that it’s possible for couples to open joint accounts and again this could be helpful if one of you is breaching the PSA.

Haine says: “A joint savings account can also make sense for couples working towards a shared savings goal. Interest earned on joint accounts is typically split equally between account holders, which might ensure neither partner breaches their individual PSAs. ISAs can only be held by individuals.”

However, in order for savings accounts to have the edge over ISAs, it’s essential that you’re shopping around for the best possible rate and switching when necessary.

The case for cash ISAs

The argument for cash ISAs becomes much more compelling if you pay a higher rate of tax, but again it depends on your balance.

Higher-rate taxpayers

A higher-rate taxpayer with a £13,500 balance will still – just about – be better off with a savings account. But for larger balances, a competitive ISA will start to deliver better returns, even if its headline rate isn’t quite as impressive as the market-leading savings account, thanks to the tax savings.

With a £20,000 balance, they’ll be £375 up with a cash ISA and with a £50,000 balance, they’ll be better off to the tune of £2,315.

With a savings account, higher-rate taxpayers wouldn’t just have a smaller tax-free PSA (£500 a year compared to £1,000 for basic-rate taxpayers) but they would have to pay more tax on their interest too (40% compared to 20%).

Cash ISAs will be even more valuable for additional-rate taxpayers who don’t have a PSA and will pay tax at 45% on all their savings interest.

Cash ISAs v savings accounts

	£13,500 in savings (typical)	£20,000 in savings (medium)	£50,000 (large)
Basic-rate taxpayer	No tax benefit; £393 better off with savings account	ISA saves £53 in tax; £478 better off with savings account	ISA saves £1,200 in tax; £59 better off with savings account
Higher-rate taxpayer	ISA saves £282 in tax; £7 better off with a savings account	ISA saves £800 in tax; £375 better off with ISA	ISA saves £3,207 in tax; £2,315 better off with ISA

Higher and basic-rate taxpayers saving into best available one-year fixed cash-ISA vs best one-year fixed bond available in October of each year over 6 years from 2020-2025, calculated using compounding interest earned and tax obligations.

Source: Moneyfacts Analyser

Looking ahead

Even if a savings account will deliver you a better return than an ISA now, it’s important to keep your eye on the ball. Your position could change in the coming years, especially if you’re on the borderline between basic and higher rate tax or you’ve got a larger savings balance.

French says: “Rates may edge down, but they’re expected to remain far higher than in the 2010s. At the same time, frozen tax thresholds mean more savers will be pulled into higher tax bands, making ISAs increasingly valuable. Even if you don’t need the tax shelter today, using ISA allowances now could pay off in the future.”

It’s also important to be aware of upcoming changes that could affect the tax you pay on your savings interest. From April 2027, the cash element of the ISA allowance will drop from £20,000 a year to £12,000, if you’re under 65. At the same time the rate of tax for savings interest will rise by 2%. This will take the basic rate to 22%, the higher rate to 42% and the additional rate to 47%.