Martin Lewis has issued a “use or lose” warning to savers over their ISA allowances before the end of the current tax year. The MoneySavingExpert gave the advice with regards to the saving accounts, which can earn people as much as £1,000 a year from the Government.
A cash ISA account is a savings product where you don’t pay tax, up to a limit of £20,000 for the 2021/22 tax year, reports the Mirror. If you have a Lifetime ISA, you can put away £4,000 each year and the Government will give you a 25% bonus on top of the cash you save. This means you can get £1,000 free each tax year - or £2,000 free if you’re in a couple and you both have a LISA (Lifetime ISA) account that you max out.
But time is running out to make the most of your LISA free money, as the current tax year ends on April 5. This means you need to transfer any money over before April 6, the new tax year, to get any bonus payment from the Government.
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“If you're a first-time buyer, check out the Lifetime ISA's 25% boost worth up to £1,000/year on your first home,” said Martin in the latest MoneySavingExpert email. Keep in mind that however much you put away in a LISA will count towards your overall yearly £20,000 ISA allowance.
But if you're saving for your first home, you won't find a regular savings account from a bank or lender that pays 25% interest. You can open a LISA account if you’re aged between 18 and 39. It can be used to put a deposit toward your first home or for retirement.
If you take out your money for anything other than these reasons, you’ll lose your bonus and pay a 25% penalty, which works out at around a 6% loss. When it comes to cash ISA rates, Martin issued a bleak statement that 85% of people are now better off ditching them.
This is because cash ISAs generally have worse rates than normal savings accounts right now. Instead of stashing your money into an ISA, you should be focusing on an account with the highest interest, he said.
“Now the personal savings allowance means most DON'T pay tax on savings interest,” explained Martin. “The PSA launched in 2016, allowing basic (20%) taxpayers to earn £1,000/year of any savings interest tax-free and higher (40%) taxpayers £500.
“At today's top easy-access 1% rate, you'd need a hundred grand saved to generate £1,000 interest. So these days, most people - over 19 in 20 in fact - don't pay tax on savings anymore.” The top easy-access account right now is from Virgin Money, which pays 1% interest on up to £25,000. If you’ve a smaller sum, it’ll pay 2.02% on £1,000.
The second top payer is Atom Bank which pays 0.9%. If you can afford to lock your money away for a whole year, Shawbrook Bank is the top player paying 1.6% - but you have to put in at least £1,000.
JN Bank will offer you 1.96% with its two-year fixed account if you pay in a minimum of £1,000, or the best five-year fix is from Monument with 2.4%. In comparison, the best easy-access cash ISA is from Paragon and pays 0.8%, while the one-year fixed cash ISA from OakNorth Bank offers 1.28% interest and a two-year from UBL UK pays 1.6%.
