ISA VS savings account

[mum2bee]

Im a little confused ANC was hoping somebody could help me!
My aim for 2013 is to save £4,000 as I am hoping to buying my own house in the next 3 years or so, but I was looking into getting an isa but the interest isn't very good, they talk about it being tax free for so much money per year, but why would we have to pay tax on your savings? Wouldn't I be better finding a normal savings account with a high interest rate?
Really sorry if I'm being stupid!

 

[LoraLoo]

Sorry Im pretty useless with these things too, I have no idea about the tax thing. Ive recently set up a couple of savings accounts- they mentioned an ISA to me, but I had to give notice when i wanted to withdraw the money, so I just went for a normal savings account. The money goes out of my current account every month so i dont really miss it. I also set up a 'save the change' account, i'd reccomend this for anyone that banks with Lloyds TSB as you dont even feel like you are saving! x

 

[Vesta]

On savings accounts you pay tax on the interest. However ISA's are tax free. It would depend on what interest rates that are being offered by the banks weather an ISA or savings account would be better. But when comparing don't forget to take into account that you'll be paying tax on the savings account.

 

[MrsRH]

If you are looking at ' locking away' money for a while an isa is your best option.
Look at comparison sites or the times on saturday, finance page, as it will lay out the best current isa and savings account rates.
If the interst rates are much the same, you'll be best with the tax free isa
X

 

[MrsRH]

Just looked on go compare website for examples
cash isa interest rate 2.25% interest tax free
Easy access savings account 2% interest taxed at 20%
Both include 12 month bonus ie rate goes down after the 12 months

 

[discoclare]

first of all, an ISA is a normal savings account. it stands for Individual Savings Account. it is different from a standard savings account in that there is a maximum limit that can be invested each year and no tax is charged on the interest. you can get instant access ones, ones that lock in the money for a fixed term, ones that are cash investments, ones that invest in stock and shares etc etc, same options as standard savings except that there is a maximum limit that can be invested each year and no tax is charged.

why would we have to pay tax on your savings?
Because you do! if you are a uk taxpayer you pay tax on interest (not the capital invested itself). same as you do on the interest on your current account. you have to pay tax on a lot of things, the clothes you buy, most of the food you buy, tax to the council, road tax if you have a car, income taxes on your wages. that's life!

Wouldn't I be better finding a normal savings account with a high interest rate?
Well, there aren't really many high interest accounts around nowadays as the base rate is so low. usually, comparing like for like at the same bank/bs (ie a cash account locking in the money for say 5 years) often the ISA is going to give you more interest than the standard savings. But in short, yes, if you find a standard savings account offering you a much higher interest rate it would be better to go for that.