ISA OR Savings

sazzle04

Hi, I'm confused about ISA's and savings accounts. On the website it says that Virgin ISA gives 2.85% AER and Santander savings account gives 3.1%. How does an ISA benefit me again? I just want to get the best interest but still be able to access my money and also I've only just starting to save so don't have thousands to deposit. If any one can shed some light on this I would be grateful.
Saz

talana

ISA OR Savings

Cash ISA is savings, just tax-free.

So ISA at 2.85% AER, you get credited with 2.85%
Savings at 3.1%, you pay 20% tax on that interest so you get credited with 2.48% after deductions.

If you're a non-taxpayer though, then perhaps "normal" savings accounts would be better.

blueberrypie

In addition to talana's reply:

If you are currently a non-taxpayer, you will earn more interest from the Santander account paying 3.1%.

However if you become a taxpayer in future, any money that you have kept in ISAs will *continue* to earn interest tax-free, whereas all interest on standard savings accounts would then become taxable from that point on.

So it may be more beneficial to sacrifice a small amount of interest now in order to keep the tax-protected status of your savings for the future.

thenudeone

ISAs are explained here http://www.moneysavingexpert.com/savings/best-cash-isa#whatis