Basic 20 rate taxpayers can earn up to 1,000 interest a year without needing to pay tax on it, higher 40 rate taxpayers 500 (top 45 taxpayers will always pay tax on savings).
Therefore the normal savings rate would have to be 82 higher for it to beat a cash ISA.
So when should you get a cash ISA?For every 100 interest you earn in normal savings you only get 60, whereas in an ISA you get the whole 100.Also it's worth remembering that while 1,000-a-year interest seems a lot now with our current pitiful interest rates, if interest rates rise then more people will need to pay tax.For every 100 interest you earn in normal savings you only get 55, whereas in an ISA you get the whole 100.Therefore the normal savings rate would have to be 25 higher for it to beat a cash ISA.For every 100 interest you earn in normal savings you only get 80, whereas in an ISA you get the whole 100.So saving into an ISA now could protect you from future tax.Higher-rate taxpayers over the PSA limit.Therefore the normal savings rate would have to be 66 higher for it to beat a cash ISA.For most people that will be enough to make all their savings tax-free, and therefore the question is simply "what pays the highest rate?".Basic-rate taxpayers over the PSA limit.The answer to that isn't cash ISAs - though rates are picking.So for most people with under around 20,000 of total savings, cash ISAs won't be a winner as they're easily beaten for most people by both top bank account savings, where you get a high rate as part of your current account and top easy-access.For top-rate taxpayers or bigger savers who've used up the PSA, there are big tax advantages of saving in a cash ISA.On the personal savings allowance (PSA) launched, which means all savings are now automatically paid tax-free.
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