Deciding between an ISA and a Regular Savings Account – what should you do?

When comparing an ISA and a regular savings account there is one main benefit that an ISA can offer you. That benefit is that you don’t pay any tax on the interest that you earn.

But how does this work in practice? This comparison guide to savings accounts and ISAs is brought to you by moneysupermarket.com, the price comparison website.

The best regular saving accounts available offer the highest rates of interest. If you were basing your decision entirely on the interest rate on offer then a regular savings account would be the choice for you. However, as with all regular saver accounts, the interest you earn will be taxed. If you were to save your money in an ISA account the interest would be tax free.

On top of this, there are plenty of other catches. You have to put money into the account regularly, which may not always be possible. You cannot put in a lump sum to start with either and the maximum amount you can deposit each year is also kept relatively low as well. Interest is paid after 12 months. It’s not always easy to withdraw your money from regular savings accounts with some accounts you must give a few months notice and with others you can’t withdraw your money during the first 12 months at all, this is not suitable for everybody.

If you do not like the idea of having your money locked away then you might find it easier to open a cash ISA account. Cash ISAs are tax-free, which makes them an attractive option to many people. Although you can get some regular saver cash ISAs amongst other types of Cash ISA, most are easy access meaning you can transfer money out whenever you need it.

Like regular savings accounts you can still only deposit a fixed amount per year, but the two main advantages are that you can add the same amount each year and you can do it as a lump sum if you find it easier, so you benefit from the interest on the whole lot for a full year. Also, unlike regular savings accounts the money isn’t transferred to an account with a worse interest rate after a year, although you should keep an eye on rates to make sure yours is still competitive.

Overall easy access or regular savings accounts are like easy access cash ISAs, except you pay tax. The interest rates are similar to ISAs, which means after tax you do in fact lose out.

The number of reasons to invest in a cash ISA rather than a regular savings account are growing all the time. Currently most adults save up to £7,200 in ISAs every year. The whole amount can be invested in a stocks and shares ISA or you could split it and put up to £3,600 in a cash ISA. In October 2009 everybody aged 50 or over was allowed a higher annual limit of £10,200, of which up to half can be saved as cash. In order to take advantage of this, you will need to be 50 on or before April 5 this year, to benefit in the current year. On April the 6th 2010 this is set to change; the limit will be increased to the same amount for everybody, regardless of age.

Interest rates are up and down in the current financial climate which means that some savers could benefit from changing who they bank with. Changing account providers for an ISA account is not quite as easy as switching a standard savings account as once the money is taken out of the account, the holder loses all the tax benefits they would have had. This can be prevented by insuring that your old provider and new provider pass on all the information about your account history.

It is worth comparing providers before deciding to open a Cash ISA. Cash ISAs can make a dramatic difference to the amount you save, so choosing the right one for you is important. Compare cash ISAs at moneysupermarket.com to get all the latest deals.

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It’s not widely known that if you wear a uniform at work that you have to subsequently wash at home, you can claim a reduction in tax anywhere from £20 to £140 a year. The government will give you that figure every year to cover the expense of having to wash your own clothes! This is in more official parlance, termed the Fixed Rate Expense Allowance, which changes your tax code to increase your pre-taxable earnings.

You won’t get this without asking for it, so you need to write to your tax office (your HR or wages department will be able to tell you which this is, if it isn’t written on a document you have to hand such as a P60). Once you know you need to contact, it’s game on.

To find out if you qualify and to access a list of the occupations that benefit from this – and there are a lot – click here. You’ll be presented with a very long list on Her Majesty’s Revenue and Customs website which shows the industry and where necessary the type of work within that industry, and how much you are entitled to claim.

Find the address of your tax office. This is fairly simple, the HMRC website has a little tool you can use to pull up the relevant one. Click here to access it.

Finally, make your claim. I’ve put together a template letter you can use to make your claim. If you’re a Google member, just select ‘File’ > ‘Save as New Copy’ to edit it, change the required points, then print it out. If you’re not a member then you’ll need to select ‘File’ > ‘Download Document As’ and choose whichever word processor you normally use, then make your changes and print it out.

You can also backdate your claim, but results vary. See the old rates and work it into your letter depending on your circumstances. HMRC will write back to you after a fashion, confirming your claim.

Literally 10 minutes of your time, an envelope and a stamp could net you up to £140 a year. Simples!

Did you already know about this?

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If you haven’t started hedging yet, now really is the time to start. Even if you only manage to hedge one tank-full, you’ll be relatively better off than if you don’t. Here’s why:

From next Tuesday (September 1st) the government’s 2p/litre rise in fuel duty announced in the last budget comes into force. Analysts are saying fuel prices will rise far beyond that initial rise due to the renewed increases in the price of oil, partly thanks to world economies picking up again as the recession eases worldwide.

Get Hedging – If you haven’t read my ‘Part 1′ on doing it, now is the time to do so.

Give Some Love – Your vehicle is a complex piece of machinery that works at its best when well cared for. Clean out or change that air filter, give it an oil change, or drop it in a little early for that annual service. A well-serviced vehicle can improve your MPG by up to 15%.

Clear the Crap – Is your vehicle used like a secondary storage cupboard? Do you have a boot filled with ‘stuff’? Every time you accelerate your car down the road, you’re using fuel unnecessarily by having to accelerate that ‘stuff’ as well as you and the vehicle itself. Take 5 minutes today and assess what is in your car. Do you need it? If the answer is no, take it out.

Inflation is Good – When it comes to your tyres, anyway. Dig out the owners manual for your vehicle and find out what tyre pressures you should have, then check them. If you don’t have any method of doing this at home, next time you’re passing a Shell petrol station, dive in. They offer free Water & Air at every garage. If you do a lot of high milage high speed driving, consider pumping 1 PSI above the recommended level for a little bit more of an efficiency edge. Check them monthly to keep your edge.

Kill Your Speed – Speeding might hurt your pocket in obvious ways, i.e. 3 points on your license and a £60 fine in your wallet. But it hurts in less obvious ways as well. If you get caught, you lose time. An average traffic stop consumes around 30 minutes. Your insurance premium may well go up if you get points on your license, which will keep costing you for up to 4 years. But going faster also consumes more fuel as well; Slowing down and keeping to the limit will keep the police off your tail, and more miles traveled between tanks.

Drive Smoothly – Harsh acceleration drinks fuel. Harsh braking eats brakes. Cut your maintenance costs and fueling costs by anticipating further ahead than you might be accustomed to by training yourself to look to the horizon. Anticipating events that appear to be brewing ahead (traffic lights, queues, junctions etc) and laying off the accelerator 20 seconds earlier will reduce your speed, and cut the amount of petrol you burn. As an added benefit, your passengers will enjoy being in the car with you as they no longer feel like they’re in an Exocet missile.

Idle Waste – It happens, and yes it is annoying, but it doesn’t have to cost your wallet as well as your timepiece. The gates come down at the level crossing just as you approach. Kill your engine: chances are you’re going to be there for at least 5 minutes. In a modern engine, 1 minute of idling is the same as driving 1km. Save yourself 5km’s of road driving, and switch off while you wait. You’ll also help cut emissions and noise pollution at the same time.

Find Cheap Fuel – A little forward planning goes a long way. Don’t wait until your car is complaining you’ve got less than 2 minutes to find it some fuel or it’ll dump you on the side of the motorway. While I advocate only buying half a tank at a time (remember – extra weight costs money to shift, and fuel is heavy!), I recommend doing your homework first before pulling in to any random garage. Today, the prices range from 110.9 in my area, to 100.9 for a litre of diesel! That’s a whole 10p per litre difference. If you’re buying 50 litres, that’s a whopping £5 difference! Sign up at PetrolPrices.com and you can see what stations near you are charging right now. A few minutes work here will save you potentially hundreds of pounds over the course of a year with minimal effort.

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