Which one is better, an ISA or savings account? Read on with Personal Loans Now to help you decide whether an ISA or a savings account is more suited to your specific needs.
- ISA or Savings Account
- ISA limits
- Savings accounts
- Savings account drawbacks
ISA or Savings Account
When it comes to savings, there’s a big range of options to choose from. Making sure that you get the right account can seem quite daunting. But of the two main types of savings accounts that are available, there is an ISA or savings account that is used regularly. There are different advantages attached to each one, as well as a variety of disadvantages. Below we can take a look at a few of the features of each type of savings accounts so that you can decide for yourself, what’s the best one for you to choose.
What are the Benefits of an ISA?
The most significant benefit of opening an ISA is that it is a form of tax-free saving. For example, the interest that you earn on the money that you save isn’t subject to tax. If you use up your ISA allowance throughout each tax year, you will observe a significant amount of interest mounting up on those savings. Additionally, there are some different types of ISAs. The cash ISA as well as the stocks and shares ISA, you can use for various purposes and also save separately.
What are the ISA Limits?
Perhaps the most significant disadvantage of ISAs is they’re subject to limits. You will find annual and overall limits to how much you can put in an ISA. You won’t be able to keep channelling your entire savings into one account and enjoy the tax-free savings. Another drawback with an ISA is that there are age limitations to open one. You have to be a minimum of 16 years old to have a cash ISA and 18 to get a stocks and shares ISA. Finally, you have to be a resident of the United Kingdom for tax purposes to benefit from an ISA. This isn’t a drawback for many but does provide a barrier to entry in some circumstances.
What are the Advantages of Savings Accounts?
If you select a savings account over an ISA, then there’s usually no limit on the amount that you can deposit annually. This will enable you to save as much as you want under the favourable terms you’ve found with the accounts provider. In the future, when bills crop up, you will have the means to pay for it without having to take out a high cost unsecured loan. Additionally, there are also savings account choices for all ages, so it doesn’t matter how young you are. On the other hand, you may have kids that you would like to get into good habits. A savings account can be available from as soon as your child is born. Savings accounts come in all different shapes and sizes, from inaccessible high-interest accounts to low-interest frequent use accounts. The flexibility of their savings accounts is just one of its significant advantages since there are far more choices than with an ISA.
What are the Savings Account Limitations?
Concerning disadvantages, by choosing a savings account, you will have to pay tax on the interest that you earn on your savings. This will be payable at precisely the same rate as you’re liable for income taxation. This is the main downside of a savings account when compared with an ISA.
Many people assume that you can save in either an ISA or a regular account. There is a much to be said for combining both. Utilise your tax-free savings allowance as well as the flexibility of the savings accounts to get the most from the money that you save.
To add to this, saving money is an excellent way of looking into the future. You may want to buy a home or pay for a wedding. By saving you will have the means to pay for this without having to apply for a long term loan with no credit check. If you do find that you require a loan, Personal Loans Now have access to an extensive range of FCA UK lenders and can help you find a lender that is most suited to your needs.
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