ISA @ 5% or Savings Account at 10%?

Andy_L

alexjohnson wrote:

Again, only in one year (and for a relatively short period afterwards). For long term savings this will prove to be false. Such is the magic of compound interest or, in this case, compound tax saving. If you can do both, great. If it's a short term fixed-end saving, go for the maximum. If it's open-ended and long term and you can't do both, go for the ISA.

I'm still not convinced. If I start saving £100 pcm like the OP from now on (and assuming no other saving) I could:

a) pay it into the ISA @ 5% tax free for the rest of eternity or

b) pay it into the reg saver @ ~8% after tax and in Jun07 transfer the lump sum into the ISA where it then gets 5% tax free for the rest of eternity.

Apart from not having used my 06/07 ISA allowance but I'm getting a, marginally, better return anyway the Reg save route is ahead