Tax explained
Cash ISA or ordinary savings account? The sums after the Budget
A taxable account has to pay more to match a cash ISA once your interest is over your allowance. Here is how much more, at each tax rate, before and after April 2027.
People often ask whether a cash ISA is 'worth it' when an ordinary account pays a higher rate. It comes down to one sum: what's left after tax. Here it is.
The one sum that matters
| Cash ISA rate | Basic 20% | Basic 24% (from Apr 2027) | Higher 40% | Higher 44% (from Apr 2027) | Additional 49% (from Apr 2027) |
|---|---|---|---|---|---|
| 3.50% | 4.38% | 4.61% | 5.83% | 6.25% | 6.86% |
| 4.00% | 5.00% | 5.26% | 6.67% | 7.14% | 7.84% |
| 4.50% | 5.63% | 5.92% | 7.50% | 8.04% | 8.82% |
Interest inside a cash ISA is tax-free. Interest in an ordinary account is taxed only on the part above your tax-free allowances. So the comparison only bites once your interest is over your allowance.
For interest above your allowance: after-tax rate = rate × (1 − your tax rate). To match a cash ISA paying r, a taxable account has to pay r ÷ (1 − your tax rate). Example: a 4.00% ISA, basic-rate taxpayer from April 2027: 4.00% ÷ (1 − 0.24) = 4.00% ÷ 0.76 = 5.26%.
When the ISA makes no difference this year
If all your interest fits within your allowances, there's no tax either way, and a straight rate comparison is all that matters. A basic-rate taxpayer with £20,000 at 4.50% earns £900 a year: £20,000 × 4.50% = £900, which is under the £1,000 allowance.
Rough guide to the balance at which interest reaches the allowance: allowance ÷ rate. At 4.50%, £1,000 ÷ 4.50% = £22,222 for a basic-rate taxpayer; £500 ÷ 4.50% = £11,111 for a higher-rate taxpayer. Additional-rate taxpayers have no allowance, so all interest is taxed.
Why it can matter more over time
Money in an ISA stays tax-free in future years, whatever happens to tax rates or your income. Money in an ordinary account is taxed at whatever the rates are in each future year. Budget 2026 is a reminder that those rates can change: interest above the allowance will be taxed 4 points more from April 2027 than today.
The ISA allowance is £20,000 a year and can't be carried forward: what isn't used by 5 April is lost for that year. Our best-buy tables list easy access and fixed cash ISAs separately from ordinary accounts, each ranked by rate alone.
About this article
Break-even rates are rate ÷ (1 − tax rate), rounded to two decimal places. They ignore the starting rate for savings and assume all the interest is above your allowance.
Tax rates from April 2027 follow Budget 2026 and are not yet law.
This is general information, not advice: it doesn't take your circumstances into account. Rates and rules can change; the sources below are where to check.
Sources
Some banks pay us when you open an account through our link. That never changes the order of our tables or what this report says.