In the UK there are really two different types of saving accounts. Firstly there are standard saving accounts, and then there are ISA saving accounts. ISA stands for Individual Saving Account and they provide the best alternative to regular saving accounts. However, there are some notable differences between standard saving accounts and ISAs which should be noted.
Overall, since they were introduced the ISAs have emerged as a good alternative to standard saving accounts. This is perhaps because ISA accounts provide one notable advantage compared with more standard savings accounts as they are tax-free. This means that any interest that is generated by the ISA account will be exactly that, and not have any tax deductions included.
In comparison, standard saving accounts are not tax-free. As such, you will note that they usually included a higher and lower net interest rate. The higher rate is the interest that it provides before tax is applied, and the lower net interest rate is what the equivalent interest rate is after tax has been deducted. As such, few standard saving accounts will actually provide higher net interest rates than the ISA account alternatives.
However, this is not the only difference between ISAs and more standard saving accounts. All ISA accounts also have a yearly investment limit. This yearly investment limit is how much that can be invested in an ISA during a tax year that begins in April. This investment limit amounts to £5,100 each year.
More standard saving accounts do not have a universal investment limit for each year. As such, they can be much more variable in this respect. However, it should be noted that most still do have an annual investment limit of some description, but this can be much higher than the ISA investment limit. As such, you can invest more into some standard saving accounts.
Aside from this, it’s also worth noting that standard saving accounts usually require that regular payments be made into the account. This can usually be a small monthly payment made into the saving account.
However, ISA accounts are more flexible in this respect. Not all ISA accounts will require this. This depends largely on the terms and conditions of the account, but most ISAs will likely not require a regular monthly contribution into the account.
These are the most notable differences between the ISA saving accounts and more standard saving accounts that most UK banks provide. Overall, because ISAs are tax-free they usually have a slightly higher interest rate than the net rates of standard saving accounts. However, both can have higher than average interest fixed interest rates for shorter periods.