Isolation transformer - does it offer protection

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It may attenuate a spike but won't eliminate it.

An ideal transformer will pass any changes in the primary to the secondary so any spikes, surges, sags, or distortions in the incoming signal theoretically get passed through. In reality transformers have limits in frequency response and will saturate at some point so they do offer some protection, but don't count on them to protect your equipment.

For protection you need a unit with an isolation transformer and some other circuitry for surge protection. Even then, if the spike is too big (think lightning strike) their is no device in the world that will protect against it.

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what good does an iso do, then?

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Most of what is sold as an isolation transformer like these come in a box that contains more than just the transformer so you get RF filtering along with surge and spike protection. The transformer itself does some things that might benefit your system including the ability to break a ground loop and offer balanced power. It will also filter out some noise.

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Once found some retail site that claimed 8:1 spike reduction. Even had a picture of an oscilloscope for evidence. Never seen that confirmed by a manufacturer and doubt they would even test for something that was not it's intent. Seems logical that they just aren't fast enough.

FYI, the discontinued PS audio ultimate outlet used a balanced (balun) isolation transformer plus filtering that works well to reduce noise-- it also claims to stop spikes, but I have no way to test. Keces also makes a high end iso sold through ebay-- looks well made.