A savings account is a type of bank account that you put money into in order to save for a later date i.e. holiday, car or house.
An ISA is an Individual Savings Account, it’s a tax-free way to save or invest.
The interest on a cash ISA is free from tax, so all the interest you earn you keep.
It means all the interest you earn from the account, you get to keep rather than paying income tax on it (which is what other savings accounts can charge).
There is an allowance for an ISA account i.e. a maximum amount you can put in a financial year (April to April), this allowance is dependent on your bank and ISA type.
Types of ISAs
- Cash ISA –allowance £20,000 (tax year 17/18)
- Lifetime ISA –allowance £4,000 (tax year 17/18)
- Innovative ISA –allowance £4,000 (tax year 17/18)
- Stocks & Shares ISA–allowance £20,000 (tax year 17/18) returns fluctuate depending on the market
- Junior ISAs – allowance £4,128 (tax year 17/18). Parents can start this savings account when their child is born but the child can only gain access when they’re 18
For up to date information on the best ISAs available, take a look at the Money Saving Expert’s website here.
Please note, it’s essential you read all the terms and conditions before opening a new bank account to ensure you’re aware of any hidden costs and/or interest rates, etc.