ISA vs. Savings: What’s the Big Difference and Which One is Right?

Financials decoded: learn the difference between an ISA and a savings account; choose which is best for you

11:44 28 February 2013

 

 

There is really only one difference if you are wondering about investing in an ISA vs. savings accounts. The most notable difference to people trying to invest would be the fact that cash ISA, while operating like a regular savings account, offers the benefit of accruing interest without having to pay taxes on the earnings. 

So, why wouldn’t people always choose cash ISAs?

 

That is the next logical question. For many it makes the most sense to begin with cashISA vs. savings accounts. It is the best use and investment of your money, given the rate of return.

 

There is, however, the fact of an annual limit on how much can be invested in a cash ISA. Ideally though, when considering cash ISA vs. savings account you would invest up to your annual limit in cash ISA and then if you wanted to set aside additional amounts in savings, you would need a regular savings account. 

 

When considering cash ISA vs. savings accounts, it’s worth noting that many cash ISAs work the same way as a savings account. If you withdraw money from cash ISA you cannot redeposit that money back into the ISA.

 

Otherwise, the money is available for immediate access in most cases. When you choose a savings account consider the frequency of deposits and compare interest rates to ensure you receive the best return on your invested funds.

 

Ultimately there is no right answer to choosing ISA vs. savings but because of the tax-free benefits, it is best to begin with cash ISA if possible.Over time a percentage difference or receiving tax-free interest, can result in a significant amount of earnings.