Published: 31 January 2025
In the showdown between Individual Savings Accounts (ISAs) and other savings accounts, you need to find the right fit for your finances. But what’s the difference between the two? Let’s break it down in plain English, so you can make the right call for your cash.
What’s a savings account?
Picture this: a safe place for your hard-earned money, with the bonus of earning interest on the side. That’s a savings account for you.
Difference between ISAs and savings accounts
Here’s the kicker. ISAs have a superpower – they can build interest tax-free1! Yep, that’s right. While other savings accounts can also earn you interest, ISAs take it up a notch.
You can earn tax-free interest on savings of up to £20,000 each tax year.
With a non-ISA savings account, the Personal Savings Allowance (PSA) currently allows all basic and higher-rate taxpayers to earn up to £1,000 and £500 in savings interest respectively before having to pay any tax, in each tax year. Additional rate taxpayers pay tax on all interest they earn. ISAs don’t count towards the allowance.
What’s an ISA?
Think of an ISA as the VIP section of the savings world with tax efficient benefits. There are different types of ISA: Cash ISA, Stocks and Shares ISA, Lifetime ISA, Innovative Finance ISA and Junior ISA. Just a heads up, we currently only offer Cash ISAs2.
Benefits of an ISA
Let’s talk perks. With an ISA, say goodbye to handing over your hard-earned interest to the taxman. Plus, ISAs can offer flexibility and choice, letting you tailor your savings game plan to suit your style.
Choosing a savings account
When it comes to picking the right savings account, it’s like shopping for the perfect pair of jeans - you want something that fits just right. Consider your goals, compare interest rates, and check out the perks each account offers. Whether you’re after easy access, or fixed rates of interest for a set period, there’s a savings account out there with your name on it.
How do ISAs work?
Each year you get an allowance to put away money tax-free. For the 2024/2025 tax year that amount is £20,000 per year.
You can split your allowance across different types of ISAs. Each type of ISA caters to different financial needs and goals.
Read our ISA guide to find out more about how ISAs work.
The wrap-up
In the battle between ISAs and other savings accounts, you get to choose the winner. With the freedom to decide how you save, you have the power to shape your financial future. Whether you’re saving for a rainy day, a dream holiday or towards retirement, finding the right savings strategy can set you on the path to financial success.
Take action
Now that you’re armed with this knowledge, it’s time to take action. Weigh up your financial goals, consider your risk tolerance, and choose the savings option that best meets your needs. Whether you opt for the tax-free1 benefits of an ISA or a traditional savings account or both, the important thing is to start saving and investing in your future. Your financial journey begins now!
1The tax treatment depends on the individual circumstances of each customer and may be subject to change in the future.
2Cash ISAs are available to individuals aged 18 or over who are resident in the UK for tax purposes.
This article/guide is not advice and you should seek independent financial or legal advice if needed.
