ISA vs other Savings Accounts

NickShadow

Sorry if this is a daft question, but what is the advantage of saving to an ISA compared to other savings accounts? As I understand it, there is 0% tax to pay on all savings accounts now. This is relevant to Pensions - as I'm reading through threads where members are debating whether or not to save more towards Pensions or save to an ISA instead - I just wondered why ISAs are still being mentioned all the time, rather than savings accounts in general?

I do have an ISA as well as a standard savings account but the interest rates are all very minimal these days so I'm not sure what the benefit of an ISA is any more (if any?)

p00hsticks

when people talk about Pensions v ISAs, they're usually referring to Stocks and Shares ISAs, not cash ISAs. The advantage of using an ISA over dealing accounts for S&S is that you don't need to worry about keeping records or Capital Gains Tax

NotSkint

S&S ISAs are an important part of my pension/future income.
Note S&S (Stocks & Shares) rather than cash ISA.
No tax to pay on withdrawals (income or capital gains) and no accounting required to HMRC.
Cash over long periods will be eroded by inflation and I am hoping my retirement will be a long and healthy one, so I need to invest rather than save; I want returns in excess of inflation so I can drawdown an income. I can't do this with savings.

There is tax to pay on normal savings accounts, if you accrue enough interest, they are not tax free.

Bravepants

You can earn upto £1000 per year in interest in any account/investment and not pay income tax. You don't need an ISA for that.

Most talk of ISAs on this website concerns stocks and shares ISAs. These are deemed long term savings. Any growth or income generated is tax free, you can invest upto £20000 per year.

The average return over the last 200 years of the UK FTSE All Share index is 5%, so you can expect much better return from a Stocks and Share ISA (or S&S ISA) compared to a cash ISA. However, there risk of capital loss compared to your bog standard cash ISA (my partner was getting 0.05% on her £70k cash ISA before she recently transferred). S&S ISAs are for long term investments on the order of 10 years or more.

Lots of people suplement their pension contributions with S&S ISAs.

NickShadow

Thank you - looks like I need to read up about S&S ISAs. I do have a cash ISA but have not considered S&S before as I've been concentrating on my Pension only.

dunstonh

as I'm reading through threads where members are debating whether or not to save more towards Pensions or save to an ISA instead

I have been on this board for many years and have rarely seen anyone suggest that using cash ISAs. The alternative is S&S ISAs.

Cash is a high risk option to use for retirement planning.

Alexland

@NickShadow also worth reading up on Lifetime ISAs if you qualify as they can be useful to run alongside (but not in place of) a pension.

NickShadow

Thanks Alexland - at 48 I'm too old for a Lifetime ISA! I have an LGPS and personal pension and am debating whether to increase my contributions to the personal pension. I have seen an IFA very recently for advice (have just completed a questionnaire) and in the meantime I'm reading whatever I can on these Boards so I gain a greater understanding of my options.

MallyGirl

Having some money in a S&S ISA alongside a pension can give flexibility. You could draw just enough from your pension to stay under the income tax threshold and then supplement with tax free withdrawals from your S&S ISA (if you have enough in there!)