ISA or Bond?

A Guide to Savings by Furness Building Society

No matter your stage of life or personal circumstances, it makes sense to ensure your money is working as hard as possible.

But you need ways to save that suit you and your situation. There are a range of different savings accounts available, each with certain merits to help your money grow.

Which is the best savings account for me?

Choosing a way to save, suited to your individual circumstances, is crucial. Having the right account for you will help you achieve your personal life goals, whether that be buying a new car, saving for a holiday or planning a new arrival.

Don’t worry - you can use our handy savings account finder to help you decide on the most suitable account account for you.

In the meantime, two of the most well known savings accounts are ISAs and Bonds. But how do they differ? This guide will help you understand the main features of both so you can make a more informed decision when it comes to saving money.

What is the difference between ISAs and Bonds?

The short answer is not a huge amount, apart from variations to limits and accessibility. But with the exception of Stocks and Shares ISAs (more on those later), both offer secure places in which to save your money and earn interest on your savings. So don’t worry if you have confused them before now. You’re not alone.

Adding to the challenge of choosing between the two is the fact that there are different types of ISA and different types of Bond. Each have subtle differences that will affect your decision about which savings account is best for you.

 

ISAs

What is an ISA?

ISA stands for Individual Savings Account. Its main benefit is that it offers tax-free interest on what you save. However, there is a limit as to how much you can pay into an ISA each year and this is currently £20,000. You can have multiple ISAs but you still can’t go over your £20,000 allowance and you can only open one Cash ISA in each tax year. 

A quick example: 

 

Cash ISA

Lifetime ISA

Innovative Finance ISA

Stocks and Shares ISA

Total ISA Savings

£6,000

£4,000

£0

£10,000

£20,000

£10,000

£2,000

£2000

£6,000

£20,000

£20,000

£0

£0

£0

£20,000

£0

£0

£10,000

£10,000

£20,000



Can I withdraw my money from an ISA?

If you have a flexible ISA, then you can withdraw funds at any time. For example, our easy access Cash ISA allows you to take money out whenever you want because there are no withdrawal restrictions. You can also pay that money back in within the same tax year and it won’t affect your £20,000 ISA savings allowance. 

A quick example: 

 

Date

Money paid in / taken out

Remaining annual ISA allowance 

April

£5,000 IN

£15,000

May

£500 OUT

£15,500

June

£500 IN

£15,000



However, different rules apply with different types of ISA. For example, you can usually still withdraw money from a Fixed Rate ISA but you will lose interest in penalties. This means you’ll have to sacrifice some of the interest you have built up to withdraw your money. 

What are the different types of ISA?

Lifetime ISA 

A Lifetime ISA or LISA is designed to help those aged 18 to 39 buy their first home or save for retirement. You can save up to £4,000 a year - either as a lump sum or by paying into it in smaller amounts. The government then adds 25% on top. 

A quick example: 

 

Individual saves...

Government adds...

Total LISA that year is...

£1,000

£250

£1,250

£4,000

£1,000

£5,000

After a minimum of 12 months, first time buyers can then put the money saved in the LISA towards a deposit for a home costing up to £450,000. 

 

Cash ISA

If you know you’ll need access to your money then an easy access Cash ISA may be the account for you. You can get to your savings whenever you want and you usually won’t have to pay any penalties. The interest you earn can be at a fixed or variable rate. 

 

Fixed Rate ISA

When you put your money into a fixed rate or fixed-term ISA, you’re agreeing to lock them away for a fixed amount of time or pay a sizeable penalty. That period of time could be anything from one year to five years depending on the account you choose. The benefit is that you’re guaranteed a fixed rate of interest for that term and it is typically higher than the interest from an easy access Cash ISA. 

 

Stocks and Shares ISA

A Stocks and Shares ISA is very different to any of the above. With an investment ISA you’re investing your money into stocks and shares rather than saving it in a secure place. 

 

The only similarity is the £20,000 ISA allowance still applies. But while with a Cash ISA you don’t pay tax on the interest, with an Investment ISA you don’t pay tax on the returns of your investments. 

 

It’s important to note that investing in stocks and shares is risky. You could earn more by putting your money in an account like this but you could also lose some or all of the money you invest. The stock market is unpredictable and there are no guarantees. 

Innovative Finance ISA
An Innovative Finance ISA (IFISA) enables you to earn tax-free interest on peer-to-peer (P2P) lending. P2P lending allows account holders to offer up their savings as loans to small businesses and individuals. The loans would then be paid back with interest on top.  These can also be risky as you may lose money if the people you've lent it to can't pay it back.

Bonds

What is a savings Bond?

A Bond is so named because you are tied in. It is a more restrictive way to save but because of this, generally pays more interest in comparison to other savings accounts. 

 

A savings Bond will run for a set period of time, anything from a few months to five years and even longer in some cases. The interest will be fixed over a set period. 

 

When your Bond comes to the end of this term, you’ll have the option to transfer to a new bond or transfer your funds to a new provider. If you do neither of these, your balance will usually be transferred into an access account which will usually have a lower interest rate (this is what happens at The Furness). We will write to you before your bond reaches maturity to set out your maturing savings account options.  

Can I withdraw my money from a Bond?

No, in most cases you won’t be able to withdraw your money. Some Bonds will allow earlier access but you will likely pay an interest penalty. For the period of the Bond, you’re required to leave your money untouched. Not only can you not take any of your money back out but you can’t add additional funds either. This makes Bonds more suitable for those who have a lump sum they want to save rather than those who want to make contributions regularly or when they are financially able to do so. 

Next steps

Do you have any questions? We understand that everyone has a unique set of circumstances and our team will be able to help guide you through the savings options that are most suitable for you. Please get in touch, visit us in branch or give us a call on 0800 834 312.