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Cash ISAs Explained: Everything You Need to Know in 2025
Ruby Layram
9th Feb 2025
Wondering how much you can save in a cash ISA? The new tax year started last week and now could be a good time to use your cash ISA allowance to the fullest.
The limit for 2024/25 is £20,000. This offers a great chance to grow your savings without paying tax.
Here, we will take a closer look a cash ISAs and why the start of the tax year could be a great time to ‘max out’!
How much can you put in a Cash ISA each year?
How much can you take out of a Cash ISA tax-free?
The benefits of maxing out your ISA at the start of the tax year
What is a Cash ISA?
A Cash ISA is a tax-free savings account. These accounts allow you to make the most of tax-free interest whilst maintaining a level of flexibility that allows you to take money out of the ISA when you need it.
Cash ISAs are offered by UK banks and are available to anyone over the age of 18. You can start saving into a Cash ISA from as little as £1.
Cash ISAs can be opened alongside other types of ISA such as Stocks and Shares ISA or Innovative Finanace ISA. However, Cash ISAs are considered to be more flexible because they allow you to regularly take out money from your account.
Opening a Cash ISA could be a good alternative to a regular savings account. Some of the best Cash ISAs offer annual interest rates of up to 5% and any profits that you make are tax-free.
How much can you put in a Cash ISA each year?
Understanding the limits for saving money in a cash ISA is key. For the 2024/25 tax year, the limit is £20,000 per person. You can save or invest up to £20,000 in a cash ISA without paying tax on returns.
Each person gets their own allowance. So, if you’re part of a couple, together you could save £40,000. This is a great chance to save more money together and to use the tax benefits of a cash ISA.
Making the most of the cash ISA allowance helps you save tax-free. You can save for anything, like emergencies, a holiday, or a new home. Using the yearly limit can really help you move forward with savings.
Cash ISA monthly allowance
So, what about monthly limits?
It is possible to max out your ISA allowance at once. There is no set monthly limit for a Cash ISA which means that you can make payments whenever you like.
You can put in the same or different amounts each month. Just make sure not to go over the £20,000 yearly limit.
Putting money into your cash ISA each month helps your savings grow tax-free. This way, you can steadily move towards your saving targets and investment goals. And you won’t have to pay tax on what you add.
You don’t need to stick to the same amount every month. You can change how much you save based on how much money you have. This is great if your income or spending changes over the year.
How much can you take out of a Cash ISA tax-free?
We’ve covered how much you can put in a Cash ISA, but what about if you want to take your money out?
Cash ISAs offer flexibility which means that it is possible to take money out of your account at any time, without it affecting your allowance.
However, it is important to be aware that some ISA providers may charge a fee for taking money out. This will vary between each provider so it is a good idea to check your terms before making any decisions.
Any money that you take out of your cash ISA will not be eligible for tax.
The benefits of maxing out your Cash ISA at the start of the tax year
Although you can save into your Cash ISA anytime you want to, the new tax year could be a great time to put away as much as possible.
Cash ISAs are ideal for this savings strategy because it is possible to take money out whenever you need to. Therefore, you can invest as much as possible at the start of the year without being locked in.
There are several benefits of ‘maxing out’ your cash ISA at the start of the new tax year.
1. Your money will have more time to grow
First and foremost, saving money into your cash ISA at the start of the tax year will give your savings maximum time to grow.
Interest is accumulated throughout the year. So, the longer that you hold money in your account, the more interest you could earn.
2. Your interest could compound
Not only does early saving give you more time to accumulate more interest, it also gives the interest that you earn the chance to compound.
Compounding is a fancy term that is used to describe the interest that is paid on your interest. Most Cash ISAs offer monthly or yearly interest payments. If you invest early and choose a yearly payment, your interest will be compounded over the year and you could receive higher returns.
All Cash ISAs are different and it is important to check the ISA terms. For example, the Barclays 1-year flexible Cash ISA offers compound interest for annual payments but does not offer compounding on monthly interest payments.
3. Avoiding the temptation to spend
You may have some spare cash to invest right now. But, that cash may not always be available!
We’ve all been there. You promise yourself that you’re going to invest your money but then you see those amazing shoes! Or perhaps you find a new restaurant that you’re dying to try. Before you know it, that spare cash is no longer in your bank account and you’ve missed the chance to invest.
By moving your spare funds into a cash ISA as soon as possible, you can avoid the temptation to spend. Instead, investing allows your money to work for you.
The beauty of a Cash ISA is that, if you really need to, you can take money out at any time to cover those emergency expenses.
Investing as soon as you can is one of the best ways to save if you tend to splurge!
What are the disadvantages of a cash ISA?
Although Cash ISAs are a good way to earn tax-free interest on your cash, there are a few downsides that could make you think twice before locking your money away.
1. Low interest rates
One of the biggest grumbles about Cash ISAs is that the interest rates tend to be pretty low. In fact, they often struggle to keep up with inflation. This means that while your savings might be growing in number, their actual spending power could be shrinking. Not ideal if you’re looking to grow your money over time!
A better alternative to consider is a stocks and shares ISA, which provides returns that typically outpace inflation (although they also come with higher risk!).
2. Access restrictions
Not all Cash ISAs allow instant withdrawals. Some come with penalties if you take your money out before a fixed term is up, while others may only allow a set number of withdrawals per year. If you think you might need quick access to your cash, you’ll need to choose carefully.
3. You can’t replace withdrawn funds
With a standard Cash ISA, if you take money out, you can’t put it back in without it counting towards your annual allowance. So, if you deposit £20,000 and then withdraw £5,000, you can’t top it back up unless you wait until the next tax year. Some flexible ISAs allow it, but it’s not a given—so always check the small print!
Top Cash ISAs to consider in 2025
Now that you know a little more about Cash ISAs and the benefits of investing in them early, let’s take a look at some of the top Cash ISA accounts to consider.
It is important to note here that nothing in this article should be taken as financial advice. Always conduct your own research before making any investment decisions. The information provided below is based on research and our own opinion.
1. Lightyear Cash ISA (The best flexible ISA!)
The Lightyear Cash ISA is a tax-efficient way to grow your savings through an investment platform that is low-cost and easy to use.
Lightyear’s Cash ISA offers an attractive 4.50% Annual Equivalent Rate (AER), positioning it competitively among current Cash ISA offerings. The 4.50% AER tracks the Bank of England rate and is notably higher than many traditional savings accounts, providing an opportunity for savers to achieve better returns.
Lightyear’s Cash ISA does not require a minimum deposit, making it accessible for savers at all levels. The provider also allows for easy access to your funds without penalties, offering flexibility for those who may need to withdraw their money. Lightyear’s ISAs are flexible, meaning you can move money freely in and out of them without losing any of your annual allowance. With Lightyear Cash ISAs your funds are held securely in UK banks and qualified money market funds (QMMFs), and you’re free to access or withdraw your money without fees or penalties.This is an investment product, therefore your capital is at risk. ISA rules apply.
The platform is designed to be user-friendly, with a simple and intuitive interface that makes managing your savings straightforward. Lightyear ISAs are flexible, meaning you can move freely in and out without losing any of your annual allowance. There’s also no hidden fees (such as transfer charges or holding fees) and you can access or withdraw your money without fees or penalties. We particularly like the mobile app, which is available on iOS and Android devices. Additionally, Lightyear offers customer support within 1 business day, ensuring assistance is available when needed.
What our editor says: “Investing apps are a simple way to grow your savings and Lightyear is one of the top Cash ISA apps to consider. The Lightyear ISA is flexible which means that you don’t need to lock away your funds for a long period of time. This makes it less daunting than other options which may require you to part with your money for a longer time period. I particularly like Lightyear’s low fees and transparency. This allows you to maximize returns, without needing to worry about fees eating into your funds.”
Lightyear offers a Cash ISA and a Stocks and Shares ISA. This means that you can spread your money across two types of investment accounts in one app.
Disclaimer: Capital at risk. ISA rules apply. Money is held in UK banks and Qualifying Money Market Funds. Lightyear UK Ltd is authorised and regulated by the Financial Conduct Authority (FRN 987226).
2. Chip Clearbank Cash ISA
We like this Cash ISA because it provides instant access and you can start saving with just £1. It also offers an impressive AER of 5.1% as well as unlimited withdrawals throughout the year.
The Chip ISA is available on mobile app. This means that you can manage your account from your phone which is great for our tech-savvy readers who want to be able to access their funds from anywhere.
3. Plum Cash ISA
This is another Cash ISA that is available via mobile app. The Plum Cash ISA pays a competitive 5.17 AER and you can access your money at any time.
Like Chip, the minimum deposit is £1 and all interest is paid tax-free. We like Plum because it has numerous positive user reviews and offers user protection of up to £85,000.
4. NatWest 1 Year Fixed Rate ISA
If you would prefer to open a Cash ISA with a reputable banking provider, this could be a good option.
The NatWest fixed rate ISA offers a 4.6% AER that is paid annually. As the name suggests, the interest rate is fixed for 1 year which means that it won’t go up or down.
This ISA requires users to lock their savings up for a 12-month period. Withdrawals are not permitted during this time. This account also comes with a higher minimum deposit of £1000.
Using a fixed-term ISA means that you will not be able to access your funds once you have locked them up. This is something to consider before making a final decision.
Other ways to make your money work for you in 2025
Cash ISAs are a good way to save money and earn tax-free interest. However, this is no the only way to make your money work for you in 2025.
If you want to start growing your wealth, you might want to take a look at some of our other useful investment guides:
- How to invest £1000
- 7 investing habits to make you rich
- How to start investing in stocks: 5 tips to get your started
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
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