Cash ISA vs Savings Account: What's Better in 2025?

If you’re unsure whether to use a Cash ISA or a regular savings account, you’re not alone. The two accounts look similar, but the tax rules make a big difference.

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Tax-Free Interest: The Key Difference

Savings Account:

• Interest is taxable
• You may exceed the Personal Savings Allowance

Cash ISA:

• 100% tax-free interest
• Even if you save £20,000+

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Personal Savings Allowance Explained

You can earn:

• £1,000 tax-free (basic rate taxpayer)
• £500 tax-free (higher rate taxpayer)
• £0 (additional rate taxpayers)

If you go over this, you pay tax.

Cash ISAs avoid this entirely.

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Which One Pays Higher Interest?

Savings accounts often have short-term promotional rates.

Cash ISAs usually offer more stable long-term rates.

In 2025, the difference is often minimal — but the tax advantage of an ISA can be significant.

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Quick Comparison Table

Feature	Savings Account	Cash ISA
Tax on Interest	Yes (above PSA)	No
Annual Limit	Unlimited	£20,000
Flexibility	High	Varies
Best For	Short-term	Long-term tax-free growth

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Which One Should You Use?

Use a Savings Account If:

• You keep less than £10,000
• You want daily access
• You’re not close to your PSA limit

Use a Cash ISA If:

• You want to maximise tax-free growth
• You have more than £10,000
• You save regularly
• You want long-term tax benefits

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The Best Strategy in 2025

Most people should:

1. Fill their Cash ISA first (up to £20,000)
2. Use savings accounts for extra money

This way, you maximise your tax-free allowance while keeping flexibility.

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Final Thoughts

Cash ISA vs Savings Account isn’t about rates — it’s about tax strategy. In 2025, a Cash ISA remains the strongest long-term tax-free savings tool.

Learn more: Read the full ISA Guide