Martin Lewis warns millions of cash ISA savers are being underpaid

World News

Martin Lewis advises on moving your savings into ISAs

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Many banks and building societies increased their rates as the Bank of England’s base rate steadily climbed throughout 2022. The base rate is currently at 3.5 percent and is set to continue to climb as the central bank works to tackle soaring inflation, meaning savers may be able to get a better return on the money they put away than they previously would have done.

Writing in his Money Tips email, Mr Lewis urged Britons to use his cash ISA check up to see if they can get a better deal.

He said “rates have rocketed” and people should “take advantage” with how they manage their savings.

ISAs have the attractive advantage that a saver is not taxed on the growth of the amount, meaning they can be a more efficient savings option than other accounts which have higher interest rates.

Mr Lewis explained: “For those with larger savings, as a cash ISA is just a savings account you can put £20,000 in per tax year where interest is never taxed – and doesn’t count towards the PSA [Personal Savings Allowance] – then for saving that’d have tax taken off, they’re a winner (so you could have normal savings for some of your money, cash ISAs for the rest).

“It can also be worthwhile having some in cash ISAs, if while you don’t pay tax on savings now, you would if interest rates rose.”

The PSA allows a person to earn £1,000 of interest on any savings in a year and not pay tax on it if they are on the basic rate of income tax.

The allowance decreases to £500 for those on the higher rate of income tax and to nothing for those on the additional rate.

Mr Lewis compared the top easy access cash ISA, with Yorkshire Building Society, paying 2.75 percent, which is less than the top normal savings account, at 2.9 percent from Tipton and Coseley Building Society.

However, for those affected, after basic tax is applied to the Tipton account, the rate falls to 2.32 percent, or with the higher tax rate, to 1.74 percent.

Mr Lewis said people should also shop around for the best cash ISA deal as many accounts currently pay a very small interest rate, often under one percent.

He said people moving to a new provider can usually state in the application form they want to transfer over savings from an existing cash ISA.

However, Mr Lewis warned: “Don’t just withdraw the money though, as then you lose the ISA status.”

Uma Rajah, founder and CEO of investment firm CapitalRise, recently told Britons should look at the various ISA products on the market.

She said: “It is worth keeping an eye out for new ISA products and providers. Many people aren’t aware that there are a range of different ISA products available nowadays with different risk and return profiles to suit different people’s risk appetites.

“From cash ISAs which provide tax-free savings with minimal or no risk (if you stay below the FSCS threshold which is currently £85,000) to innovative finance ISAs and stocks and shares ISAs, which are investment products and therefore naturally carry higher levels of risk and therefore correspondingly offer higher returns.

“The Innovative Finance ISA product is relatively new so not as well known as other ISA types but in our experience is growing fast.

“It allows investors to invest in certain types of alternative investment such as secured property loans offering returns of eight to 12 percent depending on the investments selected, but is only available for certain types of eligible investors.”

The time it takes for an ISA transfer to be completed can vary but it usually takes up to 15 days for a cash ISA transfer and around 30 days for an innovative finance ISA or stocks and shares ISA.

Ms Rajah warned people often forget about the ISA savings they have, and that people should do a check to track down any lost funds.

Ms Rajah continued: “As with pension pots, it’s not uncommon for people to forget about an ISA they might have opened years ago.

“Start your new year strong by digging through your records and assessing what money is where, and if it can be put to better use.

“Another common mistake is not actively managing your ISAs and just leaving them with a provider without checking that they are performing competitively.”

Martin Lewis is the founder of Money Saving Expert and his weekly Money Tips email can be found here.

Source: Read Full Article