Savings Account V Maxi Cash ISA

gtz101

Could someone just briefly explain some of the main differences between these two and generally which one is more riskier and long term beneficial?
Im under the assumption they are both savings account as ISA stands for investment savings account?
thanks

Aegis

There's no such thing as a maxi cash ISA. A maxi ISA is by definition a mixture of stocks and shares and cash, but the cash element can only be up to £3k of the £7k total, so it is primarily a stocks and shares ISA (especially since all of the money can be put into the stockmarket if you want to).

With that in mind, the differences:

Savings account: guaranteed capital (well, pretty much anyway!), fixed or variable interest rate generally paid either monthly or annually

ISA: a tax free wrapper that exempts you from extra income tax on dividends, income tax on interest and capital gains tax

Cash ISA: combine savings account with an ISA and you get this (hence Individual Savings Account)

Stocks and Shares ISA: a means of investing in various products free of capital gains tax and the higher rate income tax on dividends.

gtz101

for the savings account, do u have to pay tax on gains?

Aegis

You will pay income tax on the interest, but will not have to pay Capital Gains Tax. in other words, you will lose 20% of the interest at basic rate or 40% at higher rate.

gtz101

sorry for sounding silly, but could you give like a small example of how your assumption works....

Aegis

gtz101 wrote: »

sorry for sounding silly, but could you give like a small example of how your assumption works....

What assumption? Do you mean the tax rates? In which case, imagine that you earn £100 in interest. In a normal savings account, as a basic rate tax payer (most people), you keep £80 of that, and as a higher rate tax payer you keep £60 of it.

In a cash ISA, you keep £100 of it.

ISAs are fantastic because they give you that tax-free status for anything you put inside it (though dividends from shares will still be taxed by 10% at the source, which is now non-refundable)