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Why are Cash ISA rates almost the same as Regular Cash Saving rates?

jungleboy123
Posts: 78 Forumite

Hello,
I've been monitoring the deals here but the cash ISA ones are so close to the regular saving ones that it seems a bit pointless to put in a cash savings if i can just deposit 20k upfront onto an isa and max the yearly allowance?
Anyone tell me why this is and why bother not putting money in the isa?
I've been monitoring the deals here but the cash ISA ones are so close to the regular saving ones that it seems a bit pointless to put in a cash savings if i can just deposit 20k upfront onto an isa and max the yearly allowance?
Anyone tell me why this is and why bother not putting money in the isa?
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Comments
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Not everyone has £20k upfront to put into an ISA - some can only put a bit aside a month, in which case regular savings work well for them, potentially moving the money over to an ISA on maturity.1
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p00hsticks said:Not everyone has £20k upfront to put into an ISA - some can only put a bit aside a month, in which case regular savings work well for them, potentially moving the money over to an ISA on maturity.1
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If you only have £20k then it's probably not worth putting money in an ISA. Different matter if you have a lot more money.
Also £20K @ 4.5% as an example is £900 interest, so you are not far off the £1k interest max without being taxed.0 -
When you say "regular" savings account, do you mean a 'regular' savings account i.e. a set amount of money can be added per month?
In that case 'regular' savings account tend to pay a higher rate than easy access savings accounts or ISAs, because of this limited monthly deposit.
ISA rates are generally a little below the equivalent savings product because of the additional benefit of tax-free savings. Sometimes this difference actually makes the ISA product not worth having.
However once people have maxed out their £20k annual ISA contributions, regular savings accounts could then be the next best option.0 -
I suspect @jungleboy123 has used regular to mean ordinary, rather than a specific Regular/Monthly Saver
As said above, rates on cash ISAs are typically a little lower than non ISA accounts so for most people with small savings, non ISA makes sense. However, the ISA allowance is use it or lose it and over many years the benefits of sheltering savings and investments from tax can be substantial.2 -
Re the question in the title, I think it’s because there’s reasonably good competition and price sensitivity within and between both categories of account (as opposed to eg cash LISAs where there are far fewer providers so rates are a lot lower). There are still some good reasons some people aren’t opting for ISAs - maxed out ISA allowance, not paying tax anyway etc.0
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As said above, rates on cash ISAs are typically a little lower than non ISA accounts so for most people with small savings, non ISA makes sense
I think the point the OP was making ( and something I have also noticed) that in recent times ISA and non ISA rates have been very close, which was not always the case in the past. So they were wondering why it has changed .
OP there is another reason not to use ISA's, in that they are not as easy to use and it is possible to make mistakes and break the ISA rules. Transfers can be problematic etc
You only need to look at the ISA sub forum to see how confused people get.
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I imagine it is mostly to do with the PSA. Now many savers don't pay tax on their standard savings, so don't value the tax status of ISAs as much as they would have when all of their savings interest was taxed. Consequently, providers cannot tempt enough money in at a reduced ISA rate. There is still some difference across many providers, because they are still complex products with extra overhead to the provider.
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Effectively I’m saying the same thing as @badger09 in different words!It’s worth thinking about ISAs as a longer-term strategy, even if someone is unable to make use of their full ISA allowance in any given year, especially in the current (relatively) high interest rate environment.So I concur with the OP it’s a good habit to have. My life savings have always been in an ISA since they came onto the market.Cumulatively ISAs have provided a solid foundation for a tax shelter, even when I didn’t need one. Now I do, in part because of the existing ISA savings, ie I’m glad they’re still in the tax shelter.Essentially the cumulative sum of life savings and an inheritance would now knock me into the next tax bracket through interest alone if part of that sum wasn’t sheltered.Granted, you don’t *need* an ISA if you have smaller sums that don’t generate enough interest to reach the PSA, and you can always open one if needed. But £20k input on Day 1 of the 24-5 tax year at a leading ISA rate of 5% would hit the PSA threshold of £1k over a year, so hitting the PSA threshold is relatively easy to do these days. It’s worth making hay while sun shines, and making the most of the tax shelter at no administrative burden to yourself.1
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XzavierWalnut said:If you only have £20k then it's probably not worth putting money in an ISA. Different matter if you have a lot more money.
Also £20K @ 4.5% as an example is £900 interest, so you are not far off the £1k interest max without being taxed.Remember the saying: if it looks too good to be true it almost certainly is.4
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