The rates do not settle it — your Personal Savings Allowance headroom does. The framing in words, with the calculator that runs your own breakeven.
Comparing the two rates answers the wrong question. Tax is the deciding vote, and most years it never gets cast: allowances swallow most savers' interest whole, and then the better gross rate wins on its own — the wrapper earned nothing in a year that never charged for it. When the allowances stop covering the interest, tax starts trimming the ordinary account's pounds at your rate and leaves the ISA's alone, so the result can reverse while both advertised rates stand still. The real question is headroom: how far your balance, at your rate, sits from the point where your Personal Savings Allowance — £1,000 at basic rate, £500 at higher — runs out. The ISA-vs-savings calculator finds that point for your own figures.
| Tax/source year | 2026/27 |
|---|---|
| Region | UK-wide: savings interest is taxed on the UK bands and thresholds in every UK nation, including for Scottish taxpayers |
| Account rates | Never assumed. Any interest rate in a savings calculation is an input you set, stated beside the result. |
| Your other income | Wages and pension income decide how much Personal Allowance and starting rate are left for interest, and which Personal Savings Allowance band applies. |
|---|---|
| The interest itself | Interest counts towards the income that sets your band, so a large interest year can shrink the allowance that was meant to cover it. |
| The account's wrapper | The same balance at the same rate is taxed outside an ISA and untouched inside one; the wrapper, not the rate, decides whether the allowances are needed. |
| Run your own figures on the savings hub | calculator next step |
|---|---|
| Review calculation sources and methodology | source context |
| What is not decided here | PayBreakdown does not decide payroll correctness, lender approval, benefit entitlement or employer compliance, and does not give regulated financial, mortgage, debt, tax, payroll or legal advice. |
|---|
Two savers looking at identical accounts can get opposite answers. A basic-rate taxpayer with a modest balance has interest comfortably inside the allowance, so the better gross rate wins outright. A higher-rate taxpayer with a large balance has a halved allowance already spent, so the ISA's shelter beats a visibly better ordinary rate. Income sets the allowance, the balance and rate set the interest, and the comparison is between those two — which is why any general answer to this question is wrong for roughly half its readers.
Money already inside keeps its shelter year after year at no cost to any future year's deposit allowance — and the later years are the dangerous ones, with bigger balances, possibly smaller allowances and possibly higher rates. A year where the ordinary account wins on interest can still be a year where using the ISA allowance is the better long game. That judgement is yours; what the calculator settles is the this-year arithmetic and the breakeven balance where the winner changes.
This is educational guidance on how UK pay and tax work. It does not decide payroll correctness, HMRC treatment, lender approval, benefit entitlement or employment rights, and it is not regulated financial advice. Where a figure matters, check it against your payslip, your HMRC account, or the official guidance linked above.
Only if the interest it would have earned outside was going to be taxed. If your allowances already cover all your interest, the move changes nothing this year — its value is protection against the years when they will not.
A different question. Cash interest against cash interest is the only like-for-like contest; investment returns are not a rate, and weighing them against a savings account brings in risk, horizon and charges that no interest calculation can price.
Last updated 2026-08-28. Checked by Sean Elsmore. Rates last checked against GOV.UK on 2026-08-07. Estimates are for planning and should be checked against official records where the decision matters.