A Personal Finance Guide

Getting the most out of our money is something that we are all interested in. Two popular products to help do this are ISAs and savings accounts, but which of these should you go for? They both have their benefits, so a lot of it will be down to personal choice. Read on to find out more about their differences and benefits.

If you invest your money in a stocks and shares ISA, one of the main benefits is that you won’t have to pay any tax on the dividends you earn. This means if the stock market has a really good run and you make a good profit, you won’t be subject to either income tax or capital gains tax as you would be if you invested in shares outside of an ISA.

However, if you have a high interest savings account, you will have to pay tax on any interest you earn. This will usually be at a rate of 20% for basic rate taxpayers, and 40% for higher rate payers. This means that even if you compare savings accounts and choose an excellent high interest savings account, your interest will still take a hit in terms of tax.

One of the trade-offs here is that using a savings account means you get to access your money whenever you need it and you can save as much as you want. With a shares ISA, however, there is a limit on how much you can save each year. For the 2011/2012 tax year, this is £10680. You can usually access the money in your share ISA when you need to, but once you have deposited your yearly limit, you won’t be able to put anymore in even if you take some out.

Also, as the stock markets fluctuate, your investment ISA can do the same. This means when choosing between the best stocks and shares ISAs and the best high interest savings accounts, one of the most important things you need to decide is whether this is a risk you can afford to take.