How Cash ISA interest rates work

Cash ISAs are a type of savings account where you can deposit money and earn interest on your savings. The interest rates on Cash ISA works slightly differently to a regular savings account, because you won’t pay any tax on the interest you earn in a Cash ISA.

Please note, tax treatment depends on individual circumstances and is subject to change.

Read more about the other differences between Cash ISAs and regular savings accounts

 

Fixed interest Cash ISAs vs variable interest rate Cash ISAs

One of the main decisions you’ll have to make when picking the Cash ISA that’s best for you is how you want to earn interest. Some Cash ISAs are known as ‘fixed-rate’ – the interest rate is fixed for a certain duration – while others are ‘variable interest’ – the interest rate can change at the provider’s discretion.

 

Fixed-rate Cash ISAs

With a fixed-rate Cash ISA, your savings are locked behind a withdrawal period in exchange for a certain, fixed rate of interest for the duration of that period. The period can range from months to years.

The benefit here is that your Cash ISA interest rate remains constant throughout that period. This can be good if interest rates in the wider market look likely to drop. But, it can play against you when rates in the wider market are rising – because you’ll be missing out on the opportunity to earn a higher Cash ISA interest rate.

 

Variable interest Cash ISAs

Variable interest Cash ISAs offer flexibility, because the interest rate can go up or down over time in response to economic conditions and central bank policies. Often, you’ll find variable interest Cash ISAs being mentioned alongside easy access Cash ISAs – because the interest rate offered on easy access Cash ISAs is usually linked to the Bank of England’s base rate.

So, when years like 2023 come along and rates are rising consistently, a variable interest Cash ISA might be a better option to grow your money. If rates start to plateau, it’s not necessarily a bad thing and you shouldn’t immediately think that rates will soon start to drop. Central Banks don’t tend to snap interest rates back down to lower figures overnight – any decreases are usually gradual.

The Moneybox Cash ISA is easy access, and you’ll earn 4.75%* AER (variable) on balances of £500 or more, which includes a bonus rate of 0.50% for the first 12 months after opening your Cash ISA. A lower rate of 0.75% AER (variable) applies if certain account conditions aren’t met. You can read these in-app before you open a Cash ISA.

 

Open a Cash ISA

 

Factors that influence Cash ISA interest rates

Several factors can influence Cash ISA interest rates. We’ve gone ahead and highlighted the main ones below, but there are others.

  • Economic conditions: broader economic factors, including inflation, market conditions, and interest rate policies set by the Bank of England, play a big role in determining Cash ISA interest rates.
  • Provider policies: each Cash ISA provider will have its own approach to setting interest rates. Some of them will be more competitive, offering higher rates but with added account conditions, while others may offer lower rates with fewer account conditions.
  • Account type: the type of Cash ISA you choose will affect the interest rate. Fixed-rate Cash ISAs typically offer higher rates than easy access Cash ISAs, as they require you to lock your money away for a specified period.

 

How to maximise your Cash ISA interest

And finally, here are some things you can do that might help you make the most of Cash ISA interest rates.

  • Compare offers: shop around and compare the interest rates that different providers are offering on their Cash ISAs. Remember, you can always transfer your Cash ISA from one provider to another. If you do this with Moneybox, you can transfer over entirely in-app, there are no paper forms to fill out, and it’ll only take a few minutes.
  • Utilise your ISA allowance: you get an annual ISA allowance of £20,000 – and a Cash ISA is included in this. So, make the most of your annual ISA allowance and maximise your Cash ISA deposits to increase the amount of money that you’re earning interest on.
  • Regularly review the rate you’re earning: interest rates can change, so it’s really important to monitor your Cash ISA interest rate regularly to make sure you’re getting the most bang for your buck. If your rate drops significantly, consider transferring your ISA to a more competitive provider.

If you’d like more tips for how to get the most out of your savings and make interest rates work harder for you, check out these top tips from a financial expert

 

How to open a Cash ISA

You can open an easy access Cash ISA with Moneybox. You’ll earn 4.75%* AER (variable) on balances of £500 or more, which includes a bonus rate of 0.50% for the first 12 months after opening your Cash ISA. A lower rate of 0.75% AER (variable) applies if certain account conditions aren’t met. You can read these in-app before you open a Cash ISA.

 

Open a Cash ISA

 

*New customer rate as of 13/05/2024. 4.75% AER (variable) includes a bonus rate of 0.50%. A lower rate of 0.75% AER (variable) applies if account conditions aren’t met. Cash ISA interest is accrued daily and paid yearly. The rate is variable and subject to in-app conditions. We’ll inform you if it changes.