When it comes to saving, it can be difficult to know where to start. While most of us tend to have plans to save a specific amount of money each month, the nearer to payday we get, the more we tend to dip into the money we have set aside. Therefore, if you are serious about getting some savings behind you, you need to have an account in place to make the process easier.
So, here is a helpful guide that explains everything you need to know about ISAs and savings accounts, what they have to offer, and which is the better option for you.
What is an ISA?
Most people have heard of an ISA, but not everyone knows exactly what they mean and what the benefits are of having one. ISA simply stands for Individual Savings Account, and generally offers tax-free income and growth, which will help to boost the money you are saving.
There are a few different ISAs to choose from, from cash ISAs, to stocks and share ISAs, and even lifetime ISAs. The right ISA for you will be determined by how much money you have saved up and how long you plan to save for as well as the level of risk that you’re comfortable with. Stocks and shares ISAs can offer the prospect of better returns, although with these the value of your savings can do up and down.
Another factor that you should consider when looking for an ISA account is the interest rates that are available. When interest rates fall, stocks are shares ISAs can offer the prospect of better returns than cash savings ISAs offered by banks and building societies. However, with a stocks and shares ISA, the value of your savings could go down as well as up. So, you may want to investigate the options that are available to you. For example, a Stocks and Shares ISA provider like Willis Owen can allow you to save up to £20,000 a year tax free.
What is a Savings Account?
A savings account is a more common form of savings product that most people have but don’t always fully understand. However, with many savings accounts that are currently available, you’ve got lots of flexible options. For example, there are easy access accounts, which means it is easy to take money in and out of your savings, and this makes it more difficult to stick to your long-term savings plan. However, you should expect to enjoy a lower interest rate from this kind of account compared to a fixed term savings account and fewer tax benefits than an ISA.
Which Is Best For You?
If you are wondering which savings product is best for you, i.e. an ISA or a savings account, then that largely depends on how much you can benefit from each type of account. Both cash ISAs and stocks and shares ISAs offer you the chance to earn a tax-free growth and income.
This article should help you to understand how each type of ISA works and which one will help you to achieve your savings goals.
