How cash ISAs work – Reduce Break

At the start of each tax year, you are given a new annual ISA allowance. For the 2025/26 tax year the allowance is currently £20,000 and this allowance will remain the same in the 2026/27 tax year. Once you reach this limit then you can’t put any more money into an ISA until the next tax year starts.

It’s worth noting that the amount that can be deposited into an individual savings account (ISA) in cash will fall from £20,000 to £12,000 from April 2027, although over-65s will be excluded from the reduction. You can learn more about these changes in our article What do the Budget changes to cash ISAs mean for you?

However, under the current rules, you can put your entire £20,000 allowance into a cash ISA, or you can put it into a stocks and shares ISA or a peer-to-peer lending ISA. Alternatively, you can divide your pocket money between the three things.

If you don’t use your entire ISA allowance each year, you can’t carry over the unused portion to the next tax year. For example, if you set aside £15,000 this year, the remaining £5,000 of your allowance will be written off when the new tax year starts.

Stocks and shares ISAs and peer-to-peer lending ISAs (known as innovative finance ISAs) are usually best suited to those who have an appetite for risk, and can afford to leave their money untouched for a while.

However, cash ISAs are better suited to those who are risk-averse, and want the peace of mind that they will definitely get back what they invest, plus interest. They can be useful if there is something big that you need money for in the near future, for example if you want to help your children with a wedding or a home deposit, or perhaps because you are planning to make home improvements.

Under current rules, you can open multiple ISAs of the same type in any tax year if you wish. So if for example you want to open a fixed rate cash ISA and an easy access cash ISA, you are free to do so.