Cash ISA’s are a popular way to save money but Martin Lewis has shared a key piece of advice for savers who opened their ISAs a decade ago, and it could save you hundreds of pounds
Money Saving Expert Martin Lewis has dropped a bombshell for savers, telling them to stop overthinking and get their cash ISAs sorted pronto if their accounts are underperforming.
Speaking on This Morning, the money guru cut through the confusion around cash ISAs since the new tax year kicked off. He explained that a cash ISA is just like any other savings account, except you will not pay tax on the interest.
However, he also explained that not all cash ISAs are worth your time. He said: “Unless you’re in an absolutely pants cash ISA with a very low interest rate, which if you’ve had it for ten years, you probably are. What you need to do is get out of that cash ISA, and I don’t mean take your money out entirely. A cash ISA is just a savings account you don’t pay tax on. Don’t overcomplicate it.”
Lewis pointed out that loads of people are sitting ducks in poor performing ISAs they opened many years ago, totally oblivious to the fact they could be raking in more interest elsewhere.
Currently, top-paying variable cash ISAs include Tembo at 4.8% and the Post Office at 4.4%, a major step up from legacy accounts that may be offeringas little as 0.5%or lower.
If you’re looking to switch and keep your savings in their tax-free status, make sure you use the official ISA transfer process, Lewis advises.
He said: “You go to the new provider, and on the application form it will ask, ‘Do you want to transfer any money across?’ That’s how you keep the ISA status. Do not just withdraw the money yourself.”
Finance guru Lewis highlighted a significant policy shift unveiled in the Spring 2024 Budget. For the first time, it’s all cheers for savers who can now stash their cash into several ISAs of the same kind within a single tax year without breaching the annual £20,000 cap.
This groundbreaking move paves the way for some savvy saving strategies, especially for those keen to seize on multiple lucrative interest offers.
Lewis said: “You can now split your allowance across more than one cash ISA in the same tax year, which wasn’t allowed before.”
While diving into cash ISAs might be shrewd for big earners or chunky savers’ stashes, Lewis didn’t miss the chance to remind his audience that, for many, the humble standard savings account may dish out tastier returns.
For a basic-rate taxpayer, the first £1,000 of savings interest earned each tax year is tax-free. Higher-rate taxpayers have a £500 allowance, while additional rate taxpayers (45%) get no allowance at all.
There is also a lesser-known “starting savings rate” that allows low-income earners (earning under £12,570) to make up to £5,000 in interest tax-free, depending on total income.
Lewis kept it crystal clear: “The interest is what you get taxed on, not the amount you put in,” driving home the point that many could forgo the cash ISA circus altogether and just bag the best interest bonanza they find.
“Get the best rate, know your tax-free limits, and keep it simple.”