Bonds vs isa both provide ways to grow your savings, but there are key differences to consider. In this article, we look at the different benefits of each type of investment, as well as how they compare to each other.
The main difference is that ISAs offer tax-free interest*, while bonds don’t. This is because ISAs can make use of your annual Personal Savings Allowance, which means you don’t pay income or capital gains tax on any money you earn within an ISA account. By contrast, bonds can only be held in non-ISA accounts and you pay tax on any interest they generate.
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However, a higher rate of interest might not be enough to offset the tax-free advantage that an ISA provides. This is because the overriding benefit of an ISA is its long-term tax-efficiency. For this reason, if you are planning to invest your money for the longer term, a stocks and shares ISA or Lifetime ISA might be better for you.
Having said this, it’s important to remember that investing in any form can cause you to lose some or all of your capital. As such, you should always invest responsibly and in line with your own financial goals and attitude to risk. If you’re unsure about which savings or investments are best for you, seek professional advice.