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How to find the best cash ISA rates 2023

If you’re not sure what a cash ISA is or how it works, we are going to cover all the main points for you

A photo of Grace Lynch, the author

By Grace Lynch

Published on: 8 March 2023

7 min read

How to find the best cash ISA rates 2023

A cash ISA can be an easy and useful way to build up a savings account. Many people in the UK use them for things such as mortgage deposits, which can take longer to save up.

There are some extra perks of an ISA compared to a normal savings account – the fact you don’t pay tax on any interest you build being the main one.

If you want to benefit from your tax-free allowance this year though, you will need to act quickly as this allowance resets at the start of each new tax year. This current tax year will end on the 5th of April 2023.

What is a cash ISA?

Simply put, a cash ISA is a savings account like any other, the main difference being you will never have to pay any tax on the interest earnt with this account. The word ISA stands for Individual Savings Account.

There are a few different types of cash ISA to choose from:

  • Fixed rate cash ISA
  • Easy access cash ISA
  • Notice cash ISA
  • Help to Buy ISA*

Anyone can get a cash ISA (or other forms of ISA) if they live in the UK and:

  • Are over 16 years old (Cash ISA)
  • Are over 18 years old (Stocks and shares ISA and innovative finance ISA)
  • Are between 18-40 years of age (Lifetime ISA)
  • You can also open a Junior ISA for children under the age of 18 (can save up to £9,000 every year)

What is an easy access cash ISA?

With some cash ISAs, your money is locked away and you will have to give notice (Notice cash ISAs) or pay fees (Fixed rate cash ISA) to withdraw your savings.

Easy access cash ISAs are exactly what they say they are. They allow you to save money in the same way as with other ISAs, but you are able to access your savings quickly and easily if needed.

What is a fixed rate cash ISA?

Fixed rate is a term you might have heard before, for example you might have a fixed rate mortgage. But what are fixed rate ISAs and how do they work?

Fixed rate cash ISAs:

  • Can offer higher interest rates than other types of ISAs
  • Will offer fixed interest rates for a set time (usually 1, 3 or 5 years)
  • With a fixed rate, you will be able to work out exactly how much you could save over time
  • You won’t be able to benefit if interest rates with your bank/building society increase as you are locked into a set rate
  • Allow you to save up to £20,000 per tax year with no tax paid on the interest earnt
  • May have a minimum amount you need to deposit to open the account (check with the individual provider)

With a standard savings account, if you save more than your personal savings allowance within a year you might have to pay tax on any interest you build up. Your personal savings allowance or ‘PSA’ means that when saving you can build interest up of:

  • £1,000 a year tax-free (for people paying a basic rate of tax)
  • £500 a year tax-free (for people paying a higher rate of tax)

A cash ISA works differently, meaning you can save more without worrying about needing to pay tax if you save over a certain amount. With a cash ISA:

  • You will never have to pay tax on the interest you earn (the money will always be tax-free no matter how much you deposit in the account)
  • The interest earned won’t count towards your personal savings allowance for that year (allowing you to save more)
  • You can save up to £20,000 at most in a cash ISA each tax year (the tax year starts and ends each April meaning there are only a few weeks left to benefit from this year’s savings allowance)
  • You won’t be able to carry over your saving allowance to the next year (E.g., if you have only deposited £15,000 this a year, the remaining £5,000 allowance is lost when the year resets)
  • You won’t need to declare any interest from ISA when completing a tax return

Another type of ISA is a stocks and shares ISA. This is similar to a cash ISA but there are some key differences.

Cash ISAStocks and shares ISA
Can include savings in a bank or building society account as well as some National Savings and Investment productsCan include shares you hold in companies, investment funds, unit trusts, corporate or government bonds
Allows you to earn tax free interest on your savingsYour money is invested into the stock market, meaning you could achieve a higher return on investment
Can save up to £20,000 per yearCan save up to £20,000 a year
Is available from age 16Is available from age 18
You can only open one cash ISA every tax year, but you can have multiple ISAs overallThere is a risk that the value of your savings could decrease over time with a stocks and shares ISA

Yes, you can have more than one cash ISA. In theory, you can have as many cash ISAs as you want, if you wanted to split your savings into multiple accounts.

In most cases, you can also only pay into one cash ISA with each provider in a year, so if you have two accounts you won’t be able to pay into both.

Providers who will allow you to pay into more than one cash ISA (if your overall savings that year aren’t more than £20,000) are:

  • Post Office
  • NatWest
  • Aldermore
  • Charter Savings Bank
  • Kent Reliance
  • Ford Money
  • Newcastle Building Society
  • Paragon Bank

The main thing to remember is that you can only open a cash ISA once within a tax year and can’t open multiple new accounts in the same year.

You can open a different type of ISA, if you wanted to open a new savings account in the same year. You could within each year open one of each type of ISA account e.g. one cash ISA, one stocks and shares ISA, one lifetime ISA, one innovative finance ISA

Pros and cons of cash ISAs

ProCon
You can save cash without paying tax on any interest you buildYour interest rate could decrease over time, meaning less interest builds in your account
Your savings will only increase in value over timeYou might have to pay transfer fees if you want to move your savings to a new account with a different provider
You can transfer to other ISAs with better ratesThe money may not be easily accessible, depending on the type of ISA you choose
Interest rates can be high, meaning extra savings over timeSome providers won’t accept transfers from ISAs with other banks or building societies
Several options to choose from e.g. easy access cash ISA, notice cash ISA etcA different form of saving account could be a better choice for you as each person is different

A cash ISA is a good way to save money for most people, as it allows to you to earn interest with having to pay any tax.

There are other ways to save though so it is a good idea to consider all the available options. What works well for one person may not be the best choice for someone else. Other savings options include:

Stocks and shares ISAAllows you to invest in bonds and shares on the stock market.  
You could potentially receive a great return on investment, but it is also possible to lose money.  
Works best for longer term investments.
Innovative finance ISA (IFSA)The money you invest will be lent out to borrowers and businesses (through the provider) and you receive interest (a percentage of the interest charged to the borrower).  
If the borrower can’t repay you will lose the money so this can be a risky choice.
Lifetime ISAIntended for saving for a first home or retirement.  
You can only save up to £4,000 per year, and you will receive a 25% bonus on top of the amount you save e.g. if you save £2,000, you will end up with £2,500.  
Can be either a cash ISA or stocks and shares ISA.
Standard savings accountYou can take out a standard savings account with most banks and building societies.  
You will have to pay tax on interest you earn with a standard savings account.  
Certain current accountsSome current accounts will allow you to build interest over time.  
This option isn’t available with all banks and building societies.
BondsYou can get fixed rate savings bonds (with a set interest rate) or tracker bonds (the interest rate changes if the Bank of England base rate changes).  
You can choose how long to invest your money in a bond, between 6 months to 5 years. You won’t be able to access the money until this time is over.
‘Regular savers’ or regular savings accountYou must pay into these savings accounts every month and generally you only pay into them for a year at most.  
You will normally have a set limit for the maximum amount you can deposit each month.  
Interest rates tend to be higher but you will only be able to pay into this account short term.
Help to Save accountsIntroduced in 2018 for people on Universal Credit working at least 16 hours a week.  
You can save up to £50 a month and after two years can receive a tax-free bonus anywhere up to £600, depending on the amount saved. You can receive another bonus after another two years.  
You can save up to £3,600 over 4 years, with the bonuses bringing the total up to £4,800 at most.

Usually when looking for financial products e.g. mortgages and insurance policies you ideally want to choose one with the lowest interest rate possible. This will allow you to save money with lower monthly payments.

With savings accounts, you realistically want the opposite of this. The higher the interest rate on your ISA, the more you stand to save over the course of the year.

There are a few different ways to find a good rate for your cash ISA this year. You can:

  • Compare cash ISAs across multiple providers to check the available rates
  • Get advice from an independent financial advisor
  • Consider which ISA will work best for you (some ISAs will have higher rates than others)

Note: You can also switch a current ISA you have to a new provider if you find one with a higher interest rate. You might end up paying transfer fees though and you will only be able to switch if you transfer the full amount in the ISA into the new account (if the savings are from the current tax year).

Resources

Gov.uk – Individual Savings Accounts (ISAs): Overview

HM Revenue & Customs – Commentary for Annual savings statistics: June 2022

Finder – Average savings in the UK

Gov.uk – Tax on savings interest

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