Cash ISA vs Savings Account Over 60: Which Wins in 2026?

Scope: UK-wide. Savings tax rules and ISA allowances apply across England, Wales, Scotland, and Northern Ireland. Rates referenced are indicative as at January 2026.

Table of Contents

TL;DR

For most over-60s, Cash ISAs beat savings accounts after tax.
The Personal Savings Allowance (PSA) is often exceeded in retirement.
Cash ISAs and savings accounts now share the same £120,000 FSCS protection.
From April 2027, under-65s lose £8,000 of ISA allowance — making 2026 critical.
ISAs are not about chasing rates; they are about protecting returns from tax.

Cash ISA vs Savings Account for Retirees (UK 2026 Guide)

The Core Question Retirees Ask

“If the interest rate is the same, why bother with a Cash ISA?”

This is the right question — and the answer is tax, not risk.

Once you reach retirement:

Your employment income may fall
Your savings are often at their highest
Interest that was once “small” suddenly becomes taxable

That is exactly the point where Cash ISAs start to outperform ordinary savings accounts.

Cash ISA vs Savings Account: The Structural Difference

Feature	Cash ISA	Standard Savings Account
Interest tax	0% (always tax-free)	Taxable above PSA
FSCS protection	£120,000 per bank	£120,000 per bank
Access	Easy or fixed	Easy or fixed
Risk level	Very low	Very low

The only meaningful difference is how HMRC treats the interest.

The Tax Trap: Personal Savings Allowance Explained

Your Personal Savings Allowance (PSA) determines how much interest you can earn tax-free outside an ISA.

£1,000 for basic-rate taxpayers
£500 for higher-rate taxpayers
£0 for additional-rate taxpayers

In retirement, even modest balances can exceed this.

Example Calculation (Real Retirement Maths)

Scenario: £50,000 in Savings (Basic-Rate Taxpayer)

Standard Savings Account (4%)

Interest earned: £2,000
PSA: £1,000
Taxable interest: £1,000
Tax at 20%: £200
Net interest: £1,800

Cash ISA (4%)

Interest earned: £2,000
Tax paid: £0
Net interest: £2,000

Verdict:
The Cash ISA puts £200 more in your pocket each year, with the same risk and the same rate.

FSCS Protection: A Common Misunderstanding (2026 Update)

Since 1 December 2025, the Financial Services Compensation Scheme (FSCS) protects:

£120,000 per person, per authorised bank
£240,000 for joint accounts

This applies equally to:

Cash ISAs
Savings accounts
Fixed and easy-access products

Advisor insight:
Choosing a savings account over an ISA does not increase safety. The protection is identical.

Why 2026 Is a Line-in-the-Sand Year

The April 2027 ISA Allowance Cut

From April 2027:

Under-65s see their Cash ISA allowance fall from £20,000 to £12,000
Over-65s retain the full £20,000 allowance

This carve-out was secured after campaigning by Martin Lewis.

Why This Matters Even If You’re Already Over 60

Money placed inside an ISA stays tax-free forever
2026 is the last full year for many to shelter large sums
You cannot “catch up” later once allowances shrink

This is not about chasing rates — it is about locking in tax protection while you can.

Best Use Cases by Retirement Stage

Cash ISA Makes Sense If:

Your interest exceeds your PSA
You expect savings to remain high
You value certainty and simplicity
You want flexibility without tax admin

Savings Account Can Still Work If:

Total savings are modest
Interest stays below your PSA
You are using short-term holding accounts

For most retirees with £30,000+ in cash, the balance tips quickly toward ISAs.

The Transfer Mistake That Costs Thousands

Never withdraw money from an ISA to move it.

If you do:

You lose its tax-free status permanently
You may breach annual allowance limits

Always use the official ISA Transfer Service.
Your new provider handles everything behind the scenes.

This single error is one of the most expensive mistakes retirees make.

The Spouse Advantage (Often Overlooked)

When one spouse dies, ISAs are not lost.

Through Additional Permitted Subscription (APS):

The surviving spouse receives an extra one-off ISA allowance
Equal to the value of the deceased’s ISA holdings
On top of their own annual allowance

This allows couples to:

Preserve tax-free savings
Avoid forced taxable reinvestment
Simplify estate planning

For over-60s, APS can be worth tens of thousands in future tax savings.

Is This Financially Worth It?

£20k–£40k savings: Often borderline — depends on PSA
£40k–£100k savings: ISA almost always wins
Joint savers: ISA + FSCS + APS creates compounding benefits

Main risk: doing nothing and letting inflation and tax quietly erode returns.

People Also Ask (PAA) & FAQs

Are Cash ISAs still worth it after 60?

Yes. Once interest exceeds your Personal Savings Allowance, Cash ISAs deliver higher net returns with no extra risk.

Is my money safer in a savings account than a Cash ISA?

No. Both are protected equally by the FSCS up to £120,000 per person, per bank.

Do I need to pay tax on ISA interest?

No. Cash ISA interest is always tax-free, regardless of income or age.

Can I move my savings account into an ISA?

Yes, but only new contributions or transferred ISA funds remain tax-free. Existing savings must use your annual ISA allowance.

What happens if I exceed my PSA?

HMRC taxes the excess interest automatically, often via a tax code adjustment.

Can over-65s still use the full ISA allowance after 2027?

Yes. Over-65s retain the full £20,000 Cash ISA allowance.

If you are deciding where your retirement cash should sit in 2026, this comparison is only the starting point. To understand why timing now matters, our guide to the ISA allowance cut explained April 2027 shows how future rules reduce tax-free options for many savers. If part of your planning involves a spouse, the how ISA inheritance works (APS guide) explains how ISAs can continue tax-free after death. Once the rules are clear, our review of the best Cash ISAs for estate planning helps identify providers that handle large balances and transfers properly. Together, these guides form a complete framework for protecting retirement savings from tax erosion.