The difference between cash ISAs and regular saver accounts

When you’re deciding how to save your money, it’s important to understand the key differences between the various types of savings accounts.  

 

A common comparison is between Individual Savings Accounts (ISAs) and  regular savings accounts. But what sets them apart – and which option is right for you? 

 

Let’s break down how each type of account works and what to keep in mind when planning how to save. 

What is a regular saver account? 

A regular saver account is a type of savings account designed to encourage consistent saving habits by supporting regular contributions over time. These accounts often run for a fixed term and may offer higher interest rates than instant access savings options, rewarding you for sticking to your savings goals.

 

At many banks, regular saver accounts require fixed monthly deposits to stay on track and earn interest. But here at Principality Building society, we offer a more flexible approach. Regular saver accounts at Principality are designed to support saving on your own terms — without the obligation to deposit every month. This gives you the freedom to contribute as and when it suits you, while still working towards a financial goal.

 

There may still be limits on how much can be deposited each month. And missing deposits could affect the overall interest earned. It’s always best to check the specific terms with your provider.

 

Key features of a regular saver account:

• Encourages regular saving habits with the option to make monthly deposits. 
• Typically offers higher interest rates than instant access accounts. 
• Runs over a fixed term, helping you stay focused on your saving goal. 
• Usually limits withdrawals to discourage impulsive spending and help you stay on track. 

What is a cash ISA? 

A cash ISA is a savings account that allows you to save money without paying tax on the interest earned. There's an annual tax-free limit set by the Government; currently £20,000 per tax year.

 

There are several types of cash ISAs, including easy access, fixed-rate, regular saver, and Lifetime ISAs. Each offers different features to suit a range of savings goals. 

 

Fixed-rate cash ISA – These accounts require you to lock in your funds for a set term (typically 1–5 years). In exchange you’ll get a guaranteed interest rate. Withdrawals may be restricted, and early access could incur penalties. For example, some fixed-rate cash ISAs offer competitive interest rates with a minimum deposit requirement and a maximum balance limit, but often don’t allow withdrawals during the term.

 

Easy access cash ISA – These accounts offer the flexibility to deposit and withdraw funds without penalties, making them a good option if you need regular access to your savings. They typically come with lower interest rates compared to fixed-term ISAs, but can be more convenient. For example, some easy access cash ISAs allow unlimited withdrawals and can be opened with a low minimum deposit, making them accessible for a wide range of savers. 

 

Flexible cash ISA – With a flexible cash ISA, you can withdraw and redeposit funds within the same tax year without affecting your annual ISA allowance. The amount you can replace varies by provider, and the allowance resets on April 6th each year. For example, some flexible cash ISAs allow multiple withdrawals per year, with the option to replace the amount you’ve withdrawn, making it a great choice for savers who want flexibility in managing their funds. 

 

Key differences between ISAs and regular savers

Feauture	Cash ISA	Regular saver account
Tax treatment	Interest is tax-free.	Interest is taxable.
Access to funds	Varies: some offer easy access, others have restrictions.	Many limit withdrawals and have a fixed term. After the term ends you can access your savings and earned interest.
Deposit structure	Flexible, within allowance. You can deposit lump sums or regular amounts depending on the product you choose.	Either require or encourage fixed monthly contributions – limits vary by provider.
Annual deposit limit	£20,000 per tax year.	Provider-specific. Usually lower and often capped monthly.
Interest rates	Varies depending on type and term. Can be lower than regular savings but tax-free.	Often higher than flexible options, but with conditions.
Suitability	Tax-free, long-term saving.	Building a regular savings habit.

Questions to consider  

Can I open both a regular saver and a cash ISA? 
Yes, you can hold multiple types of savings accounts, including both a regular saver and a cash ISA. You should check with your provider’s rules and your personal allowance. 

 

Can I withdraw money from a fixed-rate cash ISA? 
Many fixed-rate ISAs require you to keep your money in for a set period. Withdrawing early may cause you to lose some interest or incur a penalty. 

 

What’s the difference between a regular saver and a cash ISA? 
The main differences are tax treatment and structure. Cash ISAs let you save tax-free, often with flexible access, while regular savers are designed to encourage monthly saving with set deposit amounts and potentially higher interest. 

 

Choosing what works for you 

Whether you want to maximise your tax-free savings or develop a consistent saving habit, understanding the differences between a cash ISA and a regular saver account can help you choose the best option for your needs. 

 

A cash ISA may be the better choice if you want to earn tax-free interest, particularly if you're nearing or exceeding your Personal Savings Allowance. Depending on the account, it can be a good option if you prefer the flexibility of accessing your savings without needing to commit to regular deposits. Some ISAs also provide fixed interest rates, ensuring certainty over returns. 

 

In contrast, a regular saver account is ideal if you’re looking to build a savings habit with structured monthly deposits. These accounts often offer higher interest rates than easy access ISAs but usually have minimum monthly deposit requirements as well as withdrawal limits. Unlike ISAs, the interest earned may be taxable if it exceeds your Personal Savings Allowance. 

 

Ultimately, the right choice depends on your financial goal – whether that’s growing tax-free savings or committing to regular contributions with potentially higher returns.