Is it better to have an ISA or a savings account?

It depends on your personal situation, how much you have saved, and your tax bracket. Typically, you want the best returns possible, which often means a savings account instead of an ISA. But if you’re a high or additional rate taxpayer, or you have a substantial sum of savings, you may need the tax advantages of an ISA.

Is an ISA worth it for higher-rate taxpayers?

Higher-rate taxpayers get a £500 Personal Savings Allowance. If you’re going to earn more than that in savings interest, then an ISA will protect you from income tax. Additional rate taxpayers don’t get a personal savings allowance, so a cash ISA is a good idea for short- and medium-term savings.

Would ISAs be still recommended with inflation?

If your savings interest rate is lower than inflation, the value and purchasing power of your pot is eroded over time. This is true whether it’s in an ISA or a traditional savings account. For short-term goals such as an emergency fund or a holiday, ISAs and savings accounts can still be a good place to save up. For long-term savings such as retirement, however, you should consider investing to help your money grow over time.

Why is my ISA losing money?

If you have a cash ISA, it won’t be losing money (even though inflation can erode your purchasing power, as explained above). You’ll earn interest on either a monthly or annual basis. Investment ISAs are invested, which means their value fluctuates. However, you haven’t “lost” anything unless you take the money out. The value of your shares will change daily, and a well-diversified portfolio should increase over the long-term. That’s why stocks and shares ISAs are not usually recommended unless you can leave the money invested for at least five years.

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