Psst! Wanna buy an ISA yielding 0.70% LESS than a Fixed RateBond Guv?

Dear Expert

Both the following are banks owned by Santander. This is an example. Cahoot is offering 0.7% pa more than Bradford & Bingley.

Cahoot: 2 year Fixed Rate Bond 4.20% pa matures 01/11/10

B&B: 2 year Fixed Rate Postal ISA 3.5% matures 01/11/10

There are no DIRECT charges on ISAs

Take 20% off the Cahoot Bond for tax and you get very close to B&B’s 3.50%

This has been going on for years but there has always been a “compromise” tax gap in favour of the ISA which even then is, I think, unreasonable

Could you shed some light on what I think is a Pukka general ISA rip off?

Thank you