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ISA vs savings account
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ISA vs savings account

Get to know the differences between an ISA vs a savings account with NatWest.

Tax reliefs referred to are those applied under current legislation, which may change. The availability and value of any tax relief will depend on your individual circumstances.

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What is a savings account? Open in new window

What is an ISA? Open in new window

Savings account vs ISA differences Open in new window

FAQs Open in new window

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What is a savings account?

Savings accounts help you build a pot of money and earn interest on it. Unlike current accounts, they’re not really meant for day-to-day budgeting and spending.

Instead, they give you the chance to think longer-term and work towards specific saving goals.

Perhaps you’d like to save for a new car, a house deposit, or just for an emergency. Whatever your goals are, a savings account is a simple way to set money aside. As an added bonus, your bank will pay interest on the cash you save.

What are the different types of savings accounts?

You’ll find lots of savings accounts to compare and contrast. Here are some of the main ones:

Instant or easy access accounts. You can usually pay money into these accounts – and take it out – whenever you like. But the interest rate could go up or down. Learn more about instant access accounts.
Fixed rate bonds. These savings accounts lock in your interest rate for a certain time. This way, you’ll know exactly what interest to expect. The trade-off is that you can’t normally access your money until the fixed term ends.
Regular savers. With products like our Digital Regular Saver, you have the opportunity to pay in a set amount each month, up to a certain limit. They could be an option if you don’t want to deposit a one-off lump sum.

Specific account eligibility criteria applies.

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What is an ISA?

An ISA is a specific type of savings account. In fact, it’s short for ‘individual savings account’. But the key difference between a normal savings account vs an ISA comes down to tax.

ISAs are tax-free accounts. This means you won’t pay any tax on the interest or returns your money makes. In exchange, you’ll need to stick to the annual ISA allowance. This limit is currently £20,000.

Any money you’ve paid into an ISA from previous tax years won’t be included in the current tax year’s allowance.

Since ISAs are meant for individuals, you can’t open a joint account. You can’t share your annual ISA allowance with another person either.

What are the different types of ISAs?

ISAs come in five main varieties, including one just for kids:

Cash ISAs. These work like normal savings accounts, with easy access and fixed term options available. The main contrast between a cash ISA vs a savings account is that your ISA interest is tax-free. Compare our cash ISAs.
Stocks and shares ISAs. These let you hold different investments in a single tax ‘wrapper’. Your investment income or gains should be tax-free. Just remember that your investments could rise or fall. View our Stocks and Shares ISA. The value of investments can fall as well as rise, and you may not get back the full amount you invest. Eligibility criteria, fees and charges apply.
Lifetime ISAs. These offer a 25% government bonus. But you can only put your savings towards a first home or retirement.
Innovative finance ISAs. These can help you invest in peer-to-peer loans. That means lending money directly to businesses or individuals.
Junior ISAs. You could also open a cash or stocks and shares junior ISA for your kids. Since any money that you deposit belongs to the child, no tax is due on the interest or investment returns. The child can access the full amount saved when they turn 18 and the adult will have no control over the funds. There’s a £9,000 annual limit. See what our Junior ISA offers.

Specific account eligibility criteria applies.

Get to know ISAs Open in new window

Key differences between savings accounts vs ISAs

When comparing an ISA vs a normal savings account, here’s how you can tell them apart.

Tax

ISAs are tax-efficient accounts. So, you shouldn’t have to worry about paying tax on your interest or returns.

Interest from normal savings accounts may be taxable though. Depending on your income tax band, you’ll get a Personal Savings Allowance (PSA) each year. This shows the total interest you can earn on them before you need to pay tax.

The PSA is currently £1,000 for basic rate taxpayers.

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Annual limits

You can save up to £20,000 across all your ISAs each tax year. This is called the annual allowance.

You could save the full amount in one ISA or spread it across different types, with different providers. However, you can only subscribe to one Cash ISA with NatWest each tax year.

It marks a big difference between traditional savings accounts vs ISAs. This annual allowance doesn’t cover normal savings accounts. But some products and banks might have specific limits or deposit restrictions.

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Types of savings

Stocks and shares ISAs and innovative finance accounts let you branch out into different investments and even peer-to-peer lending.

Cash ISAs and normal savings accounts are more straightforward though. Your money isn’t invested – you simply make deposits and earn interest over time.

The value of investments can fall as well as rise, and you may not get back the full amount you invest. Eligibility criteria, fees and charges apply.

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Risk

There’s little risk of losing your money in a cash ISA or normal savings account, so long as the provider is covered by the Financial Services Compensation Scheme.

Since your cash isn’t invested, it won’t be exposed to market movements.

But this isn’t the case with other ISAs. You’ll need to check you’re comfortable with investment risks before opening a stocks and shares or innovative finance account.

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Compare our ISAs and savings accounts

Browse our range to make further comparisons between an ISA vs a saving account.

Cash ISAs

Compare our instant access Cash ISA and Fixed Rate ISA.

Subscribe up to the £20,000 ISA allowance in the current tax year.

Receive tax-free interest.

Benefit from the ISA transfer process.

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You must be a UK resident aged 18+. You can only subscribe to one Cash ISA with NatWest in any tax year up to £20,000. Tax-free interest means interest payable is exempt from UK income tax.

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Flexible Saver

Access your savings whenever you need them.

Make deposits at any time.

Get a variable interest rate.

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To apply, you must be 16+ and hold a NatWest current account and be a UK resident.

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Fixed Term Savings Account

Get peace of mind with a fixed interest rate.

Leave your money untouched for a set term.

Apply for an account the way that suits you.

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To apply, you must be 16+ and a UK resident. Early closure charges may apply.

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Digital Regular Saver

Save between £1 and £150 a month.

Instantly access your cash.

Get different interest rates, depending on your balance.

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To apply, you must be 16+ and hold a NatWest current account, and this must be your only Digital Regular Saver account.

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ISA vs savings account – FAQs

Can I put £20,000 every year in an ISA?

Yes, the £20,000 annual ISA allowance, which is set by the UK Government, resets at the start of each tax year. So, you can deposit up to this amount across your ISAs every year.

You can only subscribe to one Cash ISA with NatWest each tax year.

Is a savings account the same as a cash ISA?

A cash ISA is just one type of savings account. The big difference between a traditional savings account vs a cash ISA relates to tax.

Cash ISAs are tax-free. You won’t pay tax on any interest you earn. At NatWest, we offer an instant access Cash ISA, and a Fixed Rate ISA with a set term.

On the other hand, the interest you make on normal savings accounts may be taxed, if it’s more than your Personal Savings Allowance.

Can I have an ISA and a savings account?

Yes, you can have ISAs and normal savings accounts open at the same time. But with lots of products and providers available, it’s useful to check any account limits or restrictions before you apply.

Will I go over my Personal Savings Allowance?

Since ISA interest is tax-free, it doesn’t count towards your Personal Savings Allowance. However, you could go over this allowance if you earn enough interest from your non-ISA savings accounts.

What’s the difference between a junior ISA vs a children’s savings account?

Interest on a junior cash ISA is tax-free, although you’ll need to stay within the £9,000 annual allowance. Interest from normal children’s savings accounts may be taxable though.

Meanwhile, any money paid into a junior ISA won’t become available until age 18. Whereas other kids’ savings accounts might offer instant access.

Explore our children’s savings account and Junior ISA.

Specific account eligibility criteria applies.

Learn more about savings

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