Best Cash ISA Providers in the UK: Complete Guide

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Whether you’re currently in possession of a lump sum of cash, or you’re simply looking to put a bit to one-side at the end of each month – you’ll want to maximize your returns. By this, we mean reducing the amount of tax that you pay on the interest that your money earns.

As such, one such avenue that you might be considering is an ISA account. With heaps of ISA account types now in the market, knowing which one to go with can be somewhat of a headache. However, if you’re the type of person that likes to employ zero-risk into your investment endeavours, you might be best to stick with a simple Cash ISA.

If this sounds like something you’d like to explore further, be sure to read our comprehensive guide on the Top Cash ISA Providers in the UK. Not only do we discuss the best providers of 2019, but we also give you a full breakdown of everything you need to know about Cash ISAs. This includes how they work, how much you can make in tax-free interest, and whether or not there are any risks to consider.

Let’s start by exploring what an ISA actually is.

What is an ISA?

In its most basic form, an Individual Savings Account, or simply an ‘ISA’, is a way to invest your savings without paying any tax – up to a certain amount each and every year. On top of a standard Cash ISA, UK savers now have access to a range of alternatives – each of which come with their own risks and rewards. This includes the likes of Stocks and Shares ISAs, Lifetime ISAs, Innovative Finance ISAs, and Help to Buy ISAs.

Irrespective of which ISA account you opt for, UK savers are allowed to earn a certain amount of interest every year without it being liable for tax. In the 2019/20 tax year, this amounts to £20,000 per year. In other words, the first £20,000 that you invest every year into an ISA will not require you to pay any tax. As such, regardless of how much you intend to invest, it is crucial that you make full use of your ISA allowance.

Although the ISA arena is a government-backed initiative, accounts are offered by traditional financial institutions that operate in the private sector. As such, you’ll often find that ISA accounts are just standard savings accounts, albeit, the first £20,000 is tax-free.

So now that you have an overview of what an ISA actually is, let’s explore how a Cash ISA works in more detail.

What is a Cash ISA?

Read: The Complete Guide to Cash ISAs

What is a Cash ISA? How Does it Work?

In a nutshell, a Cash ISA is essentially just a conventional savings account that comes with an annual tax-free benefit. The reason this is beneficial is that in most cases – although your local bank might pay you interest on the money that you save with them, you’ll still need to pay tax on the gains.

However – and as we will discuss in more detail further down, UK savers have benefited from tax-free savings since the Personal Savings Allowance was introduced by the UK government in 2016.

In effect, the enactment permits all UK residents to earn up to £1,000 in interest before they are liable for any tax. With traditional banks paying record-lows on savings anyway, you would need to have a significantly large lump of money to surpass the £1,000 mark. As such, depending on your individual circumstances, opening a Cash ISA isn’t always the most tax-efficient option on the table.

Nevertheless, if you do opt for a Cash ISA, you will typically have two account types to choose from – Instant Access or Fixed-Term. Let’s explore how these work in more detail.

Stocks and Shares ISA Guide

Read: The Complete Guide to Stocks and Shares ISAs

ISA Cash Account: Instant Access

As the name suggests, an Instant Access (sometimes referred to as ‘Easy Access’) Cash ISA account is ideal for those of you that want the flexibility of accessing your cash on-demand. You will typically be able to withdraw your money as and when you see fit – much like in the same way as a traditional savings account. However, this does come with a couple of drawbacks.

Firstly, an Instant Access Cash ISA will almost always pay a lower rate of interest than that of its Fixed-Term counterpart. This is because financial institutions want you to tie your money up for as long as possible, subsequently allowing them to use the funds for their own investment needs. As such, they are willing to pay a higher rate of interest for those that lock their funds away for longer periods.

Secondly, if you do opt for an Instant Access Cash ISA, you also need to make some considerations regarding your annual allowance. In other words, you won’t be able to replace your withdrawn money and expect to benefit from additional tax savings.

For example, let’s say that you made a £500 withdrawal from your Cash ISA.  Even though you decide to replace the £500 a week later, this doesn’t reset your annual allowance. On the contrary, this will add another £500 towards your annual limit. As such, you should try to avoid making regular withdrawals from your Cash ISA, as you will not experience the full tax-efficient benefits that they offer.

ISA Cash Account: Fixed-Term

As it says on the tin, a Fixed-Term Cash ISA requires you to lock your money away for a set period of time. Until this time period has surpassed you won’t be able to access your money without being financially penalized. As such, you should only consider the Fixed-Term route if you are confident you won’t need access to the funds.

Nevertheless, if you are able to tie your money away for the full-term, you will likely benefit from a much better rate of interest in comparison to an Instant Access Cash ISA. In terms of how long the Fixed-Term lasts for, this can vary from just a few months, all the way up to 5 years. In this sense, they operate largely in the same way as traditional Savings Bonds, insofar that you benefit from greater interest rates, albeit, you need to lock the funds away.

As noted above, in some cases ISA Cash providers will allow you to access your Fixed-Term ISA savings before the end of the term. However, you can all-but guarantee that you will be penalized for this. In fact, you’ll probably lose all of the interest that you previously made – subsequently rendering the investment exercise pointless!

Best Stocks & Shares ISA

Read: Best Stocks & Shares ISA Providers in the UK: Complete Guide

Cash ISAs: What to Consider

The rules surrounding Cash ISAs can appear somewhat confusing and contradictory at times. Not only this, but they can also change on a frequent basis, so it’s important that you have a firm grasp of what you can and can’t do.

Here are some of the most important factors that you need to be made aware of.

  • One Cash ISA Per Year: It is only possible to open one Cash ISA per tax year. Although you are able to transfer your Cash ISA to another provider, you’ll need to wait until the following tax year if you plan to do this independently.
  • Changing Providers: If you find a more competitive deal with another provider mid-tax year, the good news is that you are perfectly entitled to do this. Take note, your current Cash ISA provider will need to do this on your behalf.
  • Transfers Not Always Guarantee: Although there is nothing stopping you from changing providers, it is crucial to note that not all Cash ISA providers permit this. As such, you should always assess the rules surrounding mid-year transfers before depositing your funds.
  • Assess Transfer Fees: Although your current Cash ISA provider might permit mid-year transfers, this could be costly. As such, always check whether or not the provider charges any fees to transfer to another provider. If they do, you’ll need to evaluate whether or not the transfer is still viable.

So now that you know what you can and can’t do – especially regarding transfers ─ in the next section we are going to explore whether or not your Cash ISA comes with any risks.

Are Cash ISAs Risky? Is my Money Safe?

In terms of risk levels, it really doesn’t get much safer than a Cash ISA. The reason for this is that in most cases, you’ll be using a provider that is regulated as a UK bank or building society. As such, it’s likely that your provider will be protected by the Financial Services Compensation Scheme (FSCS).

For those unaware, the FSCS is a government-backed initiative that protects the first £85,000 of your money – should the institution cease to exist. However, it is important to note that a number of Cash ISA providers do not fall under the remit of the FSCS, meaning that you are best advised to check this for yourself.

Nevertheless, the providers that we recommend further down in our guide are all protected by the FSCS – as, in reality, this should be a minimum requirement for you.

As a side tip, if you currently have more than £85,000 in savings, all you need to do is split your investment across two or more providers. As you are covered per institution, this is perfectly fine to do.

Are Cash ISAs Really Worth it?

First and foremost, regardless of how risk-averse you are, you should always attempt to maximize your annual ISA allowance. If you find that a Cash ISA isn’t for you, then you should consider what other ISA accounts are in the market.

In terms of Cash ISAs specifically, whether or not they represent an effective investment strategy for you will ultimately depend on your attitude to risk. On the one hand, as long as you are using an FSCS-partnered institution, then the risk levels are virtually zero.

However, you need to remember that the amount of interest that Cash ISAs pay is typically very low. In fact, unless you are willing to lock your money away for at least five years, only then will you surpass the 2% per year interest mark – just.

As such, if you are looking for a risk-free investment vehicle that will allow you to maximize your annual gains, you might be best looking elsewhere.

For example, you might be able to acquire higher-paying savings bonds from a financial institution that is protected by the FSCS. You’ll need to perform some calculations, although it’s feasible that these savings bonds are more viable – even if you need to pay tax on your interest gains.

Furthermore, you also need to factor in the Personal Savings Allowance that was introduced in 2016, which allows you to earn up to £1,000 in interest before you’re liable for tax. As such, a key factor to consider when determining whether or not a Cash ISA is worth it is to assess the size of your investment.

Lifetime ISA Guide

Read: Complete Guide to Lifetime ISAs: Everything You Need to Know

Best Cash ISA Providers in the UK

If you’ve read our guide up to this point, then you should now have a really good idea as to whether or not Cash ISAs are right for your individual needs. If they are, you’ll now need to think about which provider to use. To help you along the way, we’ve listed the top Cash ISA providers of 2019.

Before browsing through the list of providers, spend some time assessing whether you want to opt for an Instant Cash ISA, Fixed-Term ISA, or maybe a combination of the two. Moreover, if you’re already in possession of a Cash ISA account, you might want to check whether or not your current provider permits mid-year transfers, and if they do – how much this will cost.

Best Instant Access Cash ISAs

Here is a rundown of our picks for the top providers.

Coventry Building Society – 1.46% Per Year – 3 Penalty-Free Withdrawals Annually

If you’re looking for an Instant Access Cash ISA with the highest yield, Coventry Building Society is currently on top – just. At a rate of 1.46% AER, it really doesn’t get much better than this. It is important to note that although the Coventry Building Society Cash ISA falls within the remit of an Instant Access account, there are some limitations. Notably, you can only make three withdrawals per year without being penalized.

If you make more than this, then you will need to pay the equivalent of 50 days worth of interest – as per the amount that you took out. In terms of the fundamentals, you can get started with just £1, and accounts can be opened online, over the phone, or in a branch. You also have the option of getting your interest paid monthly or annually.

In terms of transferring your money to another provider, Coventry Building Society has no issues with this, which gives you an element of flexibility moving forward. Finally, the institution is protected by the FSCS, so your money is 100% safe.

Bath Building Society – 1.3% Per Year – Unlimited Penalty-Free Withdrawals

Although the Bath Building Society is a lot smaller than the Coventry Building Society, the institution is fully protected by the FSCS. As such, it is well worth considering the 1.3% AER that the building society is currently offering on its Cash ISAs. On the one hand, this is much lower than the 1.46% being offered by the Coventry Building Society.

However, the overarching benefit of opting for this provider is that you are allowed to make an unlimited amount of withdrawals without being penalized. This is great if you think that there might be a chance further down the tax year where you might need access to your money. One of the biggest drawbacks to the Bath Building Society Cash ISA is that it cannot be opened online.

Instead, you’ll either need to do this in a branch or by post. Moreover, the provider does not allow you to make transfers mid-year, so do bear this in mind. Once again, you can get started with just £1.

Best Fixed-Term Cash ISAs

Cynergy Bank – 1.63% Per Year – 1 Year Term

If you’re looking for a slightly higher rate of annual interest, but you don’t want to keep your money tied away for too long, then it might be worth considering Cynergy Bank. Although you might not have heard of the institution, Cynergy Bank was actually established way back in 1955.

The Bank of Cyprus subsidiary is now offering a rather competitive 1.63% AER on its Cash ISAs if you are prepared to lock your funds away for 12 months.  Take note, if you do decide to go ahead with Cynergy Bank, but you find yourself in desperate need of your money, then you will be charged a whopping 180 days worth of earned interest.

With that being said, you’ll likely end up getting less than what you paid for if you have had the account for less than 6 months. As such, only go with Cynergy Bank if you are confident you can live without the investment. We should also note that Cynergy Bank requires a minimum deposit of £500 to open an account, and interest is paid on an annual basis. Finally, the institution does permit mid-year transfers to another provider, which is an added bonus.

Virgin Money – 1.71% Per Year – 3 Year Term

If you are happy to lock your funds away for at least three years, then you’ll be able to earn yourself a smidgen more in annual interest. At the time of writing, Virgin Money is offering the most competitive deal, with a 1.71% AER.

Unlike the Cash ISA offered by Cynergy Bank, Virgin Money only requires you to deposit £1 to get started. However, much like in the case of Cynergy Bank, Virgin Money will charge you heavily if you withdraw your funds out prior to the three year point. In fact, you’ll be charged 120 days worth of interest.

Finally, as an online-only institution, all Virgin Money Cash ISAs need to be opened and managed online – which is the most convenient way of getting started anyway.

United Bank UK – 2.01% Per Year – 5 Year Term

If the most important factor to you is chasing the highest amount of risk-free interest, then you’ll need to lock your money away for at least five years. In doing so, you’ll be able to get 2.01% AER with United Bank UK.

For those unaware, United Bank UK is a Shari’ah compliant Islamic Bank that established a UK off-shoot in 2001. Take note, accounts are open to all UK residents, so you don’t need to follow the Islamic faith to be eligible.

Nevertheless, in order to get the 2.01% rate, there are a couple of points that you need to consider. First and foremost, the minimum amount that you will be able to deposit is £2,000. Although this is much more than the other providers we have mentioned thus far, five year terms typically require more of a lump sum investment. For example, the next highest paying Cash ISA available at present is that of Shawbrook Bank – which requires a minimum deposit of £1,000.

In terms of the fundamentals, you can choose to receive your interest monthly, quarterly, or annually – or simply leave it until the term matures. When it comes to getting your money out early, penalties will of course apply. In fact, you’ll be looking at a huge penalty that amounts to 365 days worth of interest.

It is also important to note that you will need to open your account in a branch or by post. However, once you get the account up and running, you’ll be able to manage it online or via the telephone. Finally, your money is completely safe at the United Bank UK, with the institution fully protected by the FSCS.

Kane Pepi

Kane holds a Bachelor's Degree in Accounting and Finance, a Master's Degree in Financial Investigation and he is currently engaged in a Doctorate - researching financial crime in the virtual economy. With a keen passion for research, he currently writes for a variety of publications within the Financial and Cryptocurrency industries.

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