If you’re looking to understand the difference between an ISA vs a savings account, you’re in the right place.
In this article, we’re going to break down both account options, the benefits they present, and the challenges (or restrictions) that come with them.
Of course, if you’re looking for other European banking options, you can use our free resources to get started opening accounts with banks in Malta, the Channel Islands, or elsewhere right now.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- ISA vs Savings Accounts
- Individual Savings Account (ISA)
- Traditional Savings Account
- How to Choose the Right Account For You
- Frequently Asked Questions
- Ready to Explore Your Options?
ISA vs Savings Accounts
The main difference between ISA accounts and savings accounts is that interest earned in an ISA account is protected from tax while interest earned in savings accounts is taxed. Individuals choosing between an ISA and Savings account should consider both the benefits and the restrictions that these accounts present.
Individual Savings Account (ISA)
An individual savings account (ISA) is a tax-sheltered account in the UK. There are four different types of ISAs, including cash, stocks and shares, innovative finance, and lifetime. Importantly, ISA account holders benefit in two ways. First, account holders do not pay tax on interest earned in an ISA. Secondly, account holders do not pay tax on income or capital gains from investments in an ISA.
However, ISAs do have limits. For example, an individual must contribute to an ISA within a specified timeframe. Likewise, total contributions to cash and stock ISAs are capped per year (GBP 20,000). Lifetime ISA contributions have a separate cap, currently GBP 4,000.
ISA Savings Account
Cash ISA accounts can be held at UK banks or building societies while stocks and shares can include shares in companies, unit trusts, funds, and both corporate or government bonds.
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Traditional Savings Account
Traditional savings accounts are available at UK banks and building societies. These accounts offer basic service and limited returns.
That said, certain savings accounts do offer higher returns than others. For example, a building society account typically offers higher interest rates on savings accounts than commercial banks.
However, regardless of whether a traditional savings account is held at a bank or building society, the interest earned on the account is subject to tax.
As a result, most individuals seeking a higher return on their deposit will consider tax-advantaged accounts, like an ISA.
Ordinary Savings Account
If you are looking to open an ordinary savings account, you can contact your nearest bank to confirm their account opening requirements. However, if you are looking for better services, a wider range of investment products, and greater diversification, you may want to consider opening an account in an international banking hub.
How to Choose the Right Account For You
When it comes to choosing the right bank account, it’s important to consider the specific benefits and services that you are looking to access. Likewise, it’s important that prospective customers closely review the fees, terms and conditions, and ongoing requirements of maintaining accounts.
With this in mind, if you are interested in exploring all of the account opening options that you can find internationally, you can get started right now using GlobalBanks IQ. We’ll share more information about GlobalBanks IQ below.
Frequently Asked Questions
Below are three of the most common questions that we receive from people looking to choose between ISA and savings accounts. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
What Are the Disadvantages of an ISA Account?
There are disadvantages to an ISA account, including that account holders are limited in how much they can contribute each year. Unfortunately, this means that the benefit you receive from an ISA is capped. Additionally, if account holders choose to access their funds, penalties may be applied.
What Are the Advantages of an ISA Over a Regular Savings Account?
The main advantage of an ISA over a regular savings account is that an ISA offers tax sheltering. This extends to all four types of ISAs, including a cash ISA, stock and shares ISA, innovative finance ISA, and lifetime ISA.
Is It Worth Putting Money In an ISA?
ISAs can be an effective tool to help individuals grow their savings in a tax-sheltered manner. However, there are restrictions on the amount that an individual can contribute to their ISA. Likewise, depending on the type of ISA, there are risks in the underlying assets. With this in mind, it’s important that an individual considers all available options before choosing an ISA as the best option to grow their savings.
Ready to Explore Your Options?
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But, if you want a 100% personalized account opening service that taps into our team’s expertise and provides direct banker introductions, you can get started with GlobalBanks Insider.
Of course, if you have any questions, please contact us directly.
