ISA Rates

There has been a lot in the news recently about the state of saving in the UK. With rising inflation and the Bank of England's base rate being kept at an all-time low of 0.5%, many savers have found themselves struggling to find accounts offering them a good return on their money.

Campaign group Save Our Savers has staged public protests - which most recently included smashing up a papier mache piggy bank outside the Bank of England's HQ - to express their anger at the pressure many savers have found themselves under in recent times.

Furthermore, it has been estimated that savers have lost out on a huge £43 billion in interest since the base rate was reduced to 0.5% in March 2009 - with many interest rates on savings accounts currently sitting at less than 1%.

With all this in mind, it's important to be aware of the different banking options that may be open to you if you're looking to put money into savings - and how to get the best deal for your circumstances.

Here we'll look at the differences between Individual Savings Accounts (ISAs) and bank accounts.

What is an ISA?

An Individual Savings Account - more commonly known as an 'ISA' - is a type of tax-free savings account first introduced in the UK in 1999. There are two different types of ISA: cash and stocks & shares.

You could put savings into two separate ISAs in any one tax year - so one cash ISA, and one for stocks & shares. However, you cannot save in more than one of either type in any one tax year.

In the current 2011-12 tax year, you can save up to £10,680 in an ISA. The full amount can be invested in a stocks & shares ISA with one provider, or up to £5,340 can be saved in a cash ISA - with the remaining amount put in a stocks & shares ISA with either the same or another provider.

Compared with other types of savings account, ISAs are designed to have considerable tax benefits, and tax relief on any investments held in them. They don't have to be reported on a personal tax return, and no further tax is payable on the income received from ISA savings or investments, or on capital gains arising from investments.

Most banks and building societies offer ISAs, along with financial advisers, National Savings and Investments (NS&I) schemes and some supermarkets and retailers.

How is an ISA different to a normal bank account?

When it comes to banking, everyone has different needs.

A current account (often simply known as a bank account) is designed to give you a convenient service for holding and managing your money. There are a whole host of different bank accounts out there offering different benefits and services: from competitive interest rates to overdraft facilities and features such as telephone/internet banking.

Some bank accounts also offer built-in budgeting services which could help you manage your bills and avoid extra charges.

In short, a bank account is ideal for your day-to-day financial needs, while an ISA is better for your longer-term financial plans.

Whatever you're looking for, it's important to spend some time researching what different bank accounts are available before making a decision, so you can get the best deal - and the most out of your money.