Ask the Expert: What’s the point of putting my savings into an ISA?
For the first time ever, I think I’m going to have some money available to put into a savings account this year – probably about £7,000 – as I am getting an inheritance from my grandmother who died recently.
I’ve been looking at ISAs and bank accounts and am a little confused about what tax I might have to pay.
Am I right in thinking that I don’t need to open an ISA as the interest I get if I put it into a savings account won’t be taxed?
Response from Carl Lamb of Almary Green
You are right that provided you are not an additional rate taxpayer, you are not likely to pay tax on the interest on your savings if you put it into a regular bank savings account as long as the total interest you get is less than your personal savings allowance.
Basic rate taxpayers get a personal savings allowance of £1,000 which means that the first £1,000 of interest that you get on your savings is free of tax. Higher rate taxpayers get a personal savings allowance of £500.
Having said that, there are still good arguments for looking at ISAs for your savings. The good thing about saving in an ISA is that for as long as you keep your money in the ISA framework, you benefit from its tax-efficient treatment – irrespective of the tax band in which you fall in the future.
The other thing to bear in mind is that both savings accounts and ISAs are hugely competitive and it is worth shopping around for the best rates. Financial websites such as that from Norwich-based Moneyfacts give lists of available ISAs and savings accounts.
Make sure that you check out the basis for the rate you are being offered as some may be fixed for a period and others may be variable.
In addition, some accounts will ask you to lock in your money for a set amount of time in return for a better rate of interest so do look at the terms of the accounts you are considering to make sure that you understand what restrictions there are on any access.
If you access the money early on one of these minimum term accounts, you may be charged a penalty.
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