Cash Isas beat savings accounts on returnsWhich? Money reveals the best accounts
22 January 2013
Placing your savings in a cash Isa currently outstrips any rate you could receive from a normal savings account if you're a taxpayer, new research from Which? Money has found.
If you're a taxpayer, it pays to save in an instant access or fixed-rate cash Isa rather than an ordinary taxable savings account.
As we have seen savings rates plummet over recent months, interest rates on cash Isas have fared better.
For example, the best instant access savings account currently pays 2.10% gross but after basic-rate tax of 20%, you would earn just 1.68% - 0.82% less than you would earn in a Best Rate instant access cash Isa account from Cheshire Building Society at 2.50%.
If you are planning to save for a longer term, say for four years, you would still earn more interest in a cash Isa account. After tax, the best deal offers 2.20% compared to 2.45% in a cash Isa for the same term.
Cash Isas beating savings accounts over all terms
The differences between the return on a savings account after tax becomes more pronounced if you are a higher- or additional-rate taxpayer. For example, the best five year fixed-rate account pays 3.05% a year, but for additional-rate taxpayers that actually only translates to 1.53% after tax.
The table below shows the best cash Isa rates and the rates of return on the array of savings accounts after tax.
|Cash Isas vs savings accounts - which provides the better rate?|
|Best cash Isa rate||Best savings account rate||Rate for a basic-rate taxpayer||Rate for a higher-rate taxpayer||Rate for an additional-rate taxpayer|
|1 year fixed-rate account||2.30%||2.25%||1.80||1.35%||1.12%|
|2 year fixed-rate account||2.30%||2.75%||2.20%||1.65%||1.38%|
|3 year fixed-rate account||2.50%||2.95%||2.36%||1.77%||1.48%|
|4 year fixed-rate account||2.45%||2.75%||2.20%||1.65%||1.38%|
|5 year fixed-rate account||2.50%||3.05%||2.44%||1.83%||1.53%|
Find more Best Rate savings products
As the new Isa season approaches (April 6), it makes sense for you to use up this years' tax-free allowance of £5,640 before putting your money in a taxable savings account. Check out all the Best Rate cash Isas deals to find the best tax-free instant access, notice or fixed-rate cash Isa accounts.
Boost your savings
To find out if your savings account is paying a competitive interest rate - whether it is currently available or a superseded account, check out the Which? Savings Rate Booster tool and switch your account for a better deal if necessary.