Bradford&Bingley eSavings Account

DogDave

Hi all.

I'm looking at opening a savings account to put £1000 in for the next 3 years, until I finish Uni, as when I turned 18.5 Nationwide moved me from their kids Smart account to a Cashbuilder that earns a paltry 1.20%AER.

I'm looking at Bradford & Bingley's eSavings. My query is that the eSavings account has interest of 4.85%AER whereas the eSavings ISA earns 5.00%AER. With me being a student and as such a non-taxpayer whether my account is an ISA or not seems irrelevant but I'm thinking surely there has to be some kind of catch that I've missed - why would B&B have two seemingly identical accounts (except for one being encased in an ISA) earning different rates of interest. Can anyone spot a catch or offer alternative advice?

sjw7_2

If you dont have any money in an ISA its a good time to start. You may not be paying tax now but later on down the line you will be. You only get to put £3000 cash into an ISA per year so its best to start using it as soon as possible. You never know you may well get more to put into your savings while at Uni. If the accounts are identical like you say than its always better to get 5% than 4.85%.

Mr_Mumble

The more competitive banks do seem to give a higher interest rate for their direct/online ISAs compared to online savings accounts. Along with B&B you have A&L (5.2 v 5.15) and Halifax (5 v 4.65) who're often quoted for their top-interest rate accounts.

Why does this happen? Maybe others can give an educated explanation but I'd guess:

1. Taxed-savings accounts are generally more liquid therefore higher admin costs.
2. ISA rules mean cash-ISA accounts are less likely to have token, loss-making, balances.
3. £3,000 per annum limitation helps lessen exposure to individual savers.
4. Goodwill. Banks aid the customer, not government, when making their top-paying savings account an ISA.

DogDave

Thanks for the posts peeps, I'd not thought of all that. I'll be on the net tomorrow setting it up :-)