Cash ISA or Savings Account??

LukeP_2

Hi,

First post, searched the site and couldnt find anything that could answer my question.

Im leaving to go travelling at the end of September and have been saving in my normal current account, i want to switch to either a savings account or a Cash ISA. Which would be more beneficial for me, due to the short amount of time left to get the most out of the money saved?

So far i have £2000, but by the mid September should and hope to be around the £5000 mark.

If anyone can help, it'll be greatly appreciated.

Baldur

Given the limited time, find whichever easy access account that will offer you the best interest.

To compare taxable savings rates with ISA rates, a standard rate taxpayer needs to achieve 1.25 * the rate offered by an ISA. So to beat a Cash ISA offering a rate of 3.3% AER, you'd need to find a taxable account paying more than 4.125%.


<Edit> at a rate of 3.3% AER, £2,000 deposited today would earn around £24.41 gross interest by 30th September.

tingtong

I'm certainly no expert on ISAs but what I will say is make sure you have the best credit card & current account for accessing money whilst you are travelling.

Using the wrong ones will cost you more in fees than you'll get in interest over the next few months.

Have a read here:

http://travelmoney.moneysavingexpert.com/

LukeP_2

So what you saying in short, is that Cash ISA is the safest and best option for my money?

I was leaning towards getting one because im still owed money aswell so i can leave that in there for the tax year to gain interest.

Also:

Thanks just watched the video on that link, gave me some things to think about.

Baldur

LukeP wrote: »

So what you saying in short, is that Cash ISA is the safest and best option for my money?

Yes - as long as it pays you a better interest rate than an ordinary easy access savings account would after deduction of tax.

dtsazza

LukeP wrote: »

So what you saying in short, is that Cash ISA is the safest and best option for my money?

A cash ISA is basically just a bog-standard savings account with a special "wrapper" around it that removes the need to pay tax on the interest*.

Asides from the tax aspect, they're identical - in other words (assuming you're a basic rate taxpayer) a 5% instant-access savings account and a 4% instant-access cash ISA are basically identical accounts from this perspective.

(Of course in practice the accounts may have different terms and conditions, just as two different savings accounts may have different terms and conditions. But I'm merely highlighting the fact that all the "ISA-ness" really does is multiply the effective interest by 1.25.)

So ISAs are just as safe as savings accounts (completely safe if it's an FCSC-regulated firm and the amount you deposit is under £85,000). Just pick the one that pays the best net rate, out of all accounts that have conditions that you agree with (e.g. withdrawal penalties, means of operation, etc.).

*And some other restrictions about the amount you can invest, etc., which are irrelevant here.

bigfreddiel

Of course if you do a tax return an ISA makes life a lot easier - no need to keep records for the tax man as you do not to enter any ISA savings details.

OTH an ordinary savings account (bank or bs) even tho' its taxed at source by 20% and even if you are a standard rate tax payer you must enter the details - standard rate tax payers will not be liable for any more tax but higher rate tax payers will - so it pays in more ways than one to keep your savings in an ISA wrapper.

fj