Can you have an ISA and a savings account at the same time?

You can hold both an ISA and savings account at the same time, however it’s helpful to know the positives and challenges of both types of account. The interest you earn in an ISA is 100% tax-free*, however, you’re currently limited to only £20,000 of annual ISA deposits. Standard savings accounts can still earn you tax-free interest, subject to your PSA, and are generally unburdened by an annual deposit limit.

What’s the key difference?

The key difference between these accounts is that an ISA has the benefit of shielding your interest from tax, however you can only deposit up to £20,000 into ISA accounts each year (known as your ISA allowance).

By contrast, a standard savings account is taxed normally in line with your PSA (Personal Savings Allowance), before paying tax, depending on your tax bracket. However, these accounts are generally not governed by the same limited annual deposit amounts as ISAs.

How do tax rules affect the choice?

ISA accounts have the benefit of being 100% tax-free, provided the proper ISA transfer process has been followed by your provider and you don’t move the funds personally.

Standard savings accounts are governed by your PSA. This means that basic rate taxpayers can earn up to £1,000 in interest each year tax-free. Higher rate taxpayers have a lower PSA of £500 a year tax-free, and additional rate taxpayers can’t earn any interest without paying tax unless they use an ISA.

How do access and transfer rules compare?

Where standard savings accounts generally allow you to access or move your money quickly, ISA access and transfer rules are more complicated. All ISA transactions must be handled directly via your provider in accordance with HMRC rules to preserve the tax-free status of your savings. A provider will supply an ISA transfer form and potentially other paperwork to fill out.

Additionally, while standard savings account transactions can take as little as one working day, some ISA transfers can take as long as 15-30 days to process due to the more complicated procedure between third-party providers.

Lastly, withdrawing funds from a non-flexible ISA will not restore that amount of money into your annual ISA allowance. Flexible ISAs do allow for this (for example, withdrawing £1,000 from a £20,000 cash ISA would return that £1,000 to your annual deposit limit), however these flexible accounts are often defined by less attractive interest rates as a result.

Refer to MoneyHelper for assistance on the best savings account for you.

What account conditions should you check?

Both standard savings accounts and ISAs can be split into the same account types: easy access, notice and fixed-rate bonds. Easy access accounts provide instant withdrawals but are subject to variable interest rates. Notice accounts generally offer more attractive interest rates but are subject to notice lengths on cash withdrawal requests, often between 30 and 90 days before you can access your funds. Fixed-term accounts lock your money away for an agreed period with the benefit of a consistent interest rate for that entire term.

ISA accounts sometimes offer more flexibility in these accounts. However, they can be subject to extra early closure account fees or penalties if you attempt an ISA transfer before a fixed bond matures. As a result, it can be helpful to check your account rules before considering an ISA transfer.

Can you have an ISA and a savings account at the same time?

You are allowed to hold both an ISA and a savings account at the same time, though it’s naturally important to understand the differences between these accounts.

• ISAs are fully shielded from tax on their interest, whereas standard savings accounts can only earn tax-free interest up to your PSA limit.
• ISAs are also limited by your annual ISA allowance, meaning you can’t currently deposit more than £20,000 a year into these types of accounts. Most standard savings accounts do not come with this limit.
• ISA transfers are more complicated than standard savings transfers, meaning they must be handled directly by your banking providers, require further paperwork and can take 15-30 days to process.
• Money withdrawn from a non-flexible ISA does not return to your annual allowance pool. Flexible ISAs do allow for the money to return to the allowance pool, however, they often come with less competitive interest rates.

Frequently asked questions

Can I have a Cash ISA and a regular savings account at the same time?

Yes, you can hold both types of account at the same time.

Can I pay into an ISA and a savings account in the same tax year?

Yes, you can pay into both types of account in the same tax year. Only an ISA is limited by your £20,000 annual deposit allowance.

Is it better to save in a Cash ISA or a savings account?

A cash ISA comes with the inherent benefit of 100% tax-free interest savings. However, it’s £20,000 annual deposit limit can restrict how much you’re able to save in these accounts each year. Which account is ‘better’ can depend on how much money you want to save, and it can be beneficial to explore opening both kinds of account as a result.

Do I pay tax on interest earned in a savings account?

You can earn a certain amount of interest tax-free depending on your tax band’s corresponding PSA. Basic rate taxpayers can earn £1,000 of tax-free annual interest, higher rate taxpayers can earn £500 and additional rate taxpayers must pay tax on all their interest.

Is interest earned in a Cash ISA tax-free?

Provided the proper ISA transfer process is followed by your provider and you don’t personally move the money, then your ISA interest is tax-free.

Does money in a savings account count towards my ISA allowance?

No, only money deposited into ISAs counts towards your allowance.

What happens if I exceed my ISA allowance?

The excess money over the allowance limit will lose its tax-free status, meaning you may incur tax on the interest it earns.

Next steps

If you’re wondering can you have an ISA and a savings account at the same time, here are some further articles with helpful information worth exploring:

View Cash ISAs

View current interest rates

View all savings products

^*Tax treatment depends on an individual’s circumstances and may be subject to change in the future.

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