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🇬🇧 UK Savings · Tax Comparison

ISA vs Savings Account Calculator

Compare a tax-free Cash ISA against a taxable standard savings account. Find out exactly which one leaves you with more money in your pocket.

✓Personal Savings Allowance✓Tax Brackets Included✓Instant Comparison✓Free — no sign-up

Your Savings & Tax Bracket

Interest Rates to Compare

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The Verdict

Both accounts earn the exact same net interest.

Standard Savings Account

Gross Interest Earned:£0.00
Tax-Free Allowance (PSA):£0.00
HMRC Tax Bill:-£0.00
Net Interest You Keep:£0.00

Cash ISA

Gross Interest Earned:£0.00
Tax-Free Allowance:Unlimited
HMRC Tax Bill:£0.00
Net Interest You Keep:£0.00
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Are Cash ISAs Better Than Savings Accounts?

The answer used to be a simple "Yes". Today, it requires a calculator. Because standard savings accounts usually offer higher "headline" interest rates than Cash ISAs, a standard savings account might actually be better for you—but only if you don't have to pay tax on the interest.

The moment you start paying tax on your savings interest, the Cash ISA almost always wins. To figure out if you will pay tax, you need to understand the Personal Savings Allowance. (Note: You can check your current tax bracket using our Take-Home Pay Calculator).

The Personal Savings Allowance (PSA) Explained

The PSA is an annual tax-free allowance specifically for interest earned outside of an ISA. How much you get depends entirely on your Income Tax band:

  • Basic Rate Taxpayers (20%): Get a generous £1,000 tax-free interest allowance. If you earn less than £1,000 in interest per year, a standard savings account with a higher rate is the best choice.
  • Higher Rate Taxpayers (40%): Only get a £500 allowance. If you have a decent chunk of savings, you will easily exceed this limit and start losing 40% of your interest to HMRC.
  • Additional Rate Taxpayers (45%): Get £0 allowance. Every single penny of interest in a standard savings account is taxed at 45%.

Why Higher Earners Should Almost Always Use ISAs

If you earn over £50,270 (a Higher Rate taxpayer), you only have a £500 Personal Savings Allowance. At a 5% interest rate, a deposit of just £10,000 will hit that £500 limit.

Any interest above that is taxed at 40%. This means a standard savings account advertising a 5.0% interest rate actually has an effective "net" rate of just 3.0%. A Cash ISA paying 4.0% would easily beat it.

What Happens When You Exceed the £20,000 ISA Allowance?

Every UK adult gets a £20,000 ISA allowance per tax year (resetting on April 6th). You can put this entire £20k into a Cash ISA, protecting the interest from tax forever.

If you have £50,000 in cash, you would put £20,000 into a Cash ISA. The remaining £30,000 must go into a standard savings account (or Premium Bonds) where it will likely generate enough interest to incur a tax bill. The following April, you can move another £20,000 into your ISA to protect it.

Tax on Savings

Frequently asked questions

Are Cash ISAs better than standard savings accounts?
It depends entirely on your tax bracket and how much you have saved. Standard savings accounts usually offer slightly higher interest rates, but the interest is taxable. Cash ISAs offer completely tax-free interest. If you have a large deposit or are a higher-rate taxpayer, a Cash ISA will almost always win.
What is the Personal Savings Allowance (PSA)?
The PSA allows you to earn a certain amount of interest every year without paying any tax. Basic rate taxpayers (20%) get a £1,000 allowance. Higher rate taxpayers (40%) get a £500 allowance. Additional rate taxpayers (45%) get £0 (no allowance).
How does HMRC collect tax on my savings interest?
Banks report your interest directly to HMRC at the end of the tax year. If you owe tax because you exceeded your PSA, HMRC will usually change your tax code for the following year to automatically deduct the tax from your payslip.
Is there a limit to how much I can put in a Cash ISA?
Yes. You have a total ISA allowance of £20,000 per tax year. This limit is shared across all your ISAs (Cash, Stocks & Shares, Innovative Finance, and Lifetime ISAs).
What happens if I exceed the £20,000 ISA limit?
You cannot legally deposit more than £20,000 into ISAs in a single tax year. If you have more than £20,000 to save, you must put the excess into a standard savings account (and pay tax on any interest that exceeds your PSA) or invest it elsewhere.
Why do Cash ISAs often have lower interest rates?
Because Cash ISAs offer a massive tax advantage, banks know that higher-rate taxpayers will still choose them even if the headline rate is slightly lower than a standard savings account. The bank effectively 'bakes in' a portion of the tax saving.
Do I have to declare standard savings interest on a Self Assessment?
If your interest is below £10,000, HMRC will usually collect the tax via your tax code automatically. However, if your savings interest exceeds £10,000, you are legally required to register for Self Assessment and declare it on a tax return.
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