Martin Lewis has issued a warning to anyone with a cash ISA, saying millions are being underpaid. The MoneySavingExpert has issued his latest advice in a newsletter.
The tax-free savings accounts mean customers pay no tax on the interest they earn on their savings. However, Martin has said anyone thinking of opening an ISA should carry out three important checks.
LancsLive reports for most people normal savings accounts '"beat" cash ISAs. This is because your Personal Savings Allowance means that you would need to have £34,500, or £17,500 if you're in the higher tax bracket, in a top easy-access savings account before you earned enough interest to start being taxed on it.
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People on the basic 20% tax rate can earn up to £1,000 interest a year on any savings account tax-free, while those on the higher 40% rate can earn £500 a year, ChronicleLive reports.
Taking to Twitter, Martin listed his three essential cash ISA questions to ask yourself:
- Could you earn more in normal savings?
- Should you switch your cash ISA to earn more?
- Should you pay a fixed penalty to "ditch and switch"?
Martin then urged people to check their accounts as ISAs pay out "diddly squat", often under 1%. He said: "If it's pants, simply open a new top-paying cash ISA, and usually in the application form you can ask the new provider to transfer your existing cash ISA(s) to it - don't just withdraw the money though, as then you lose the ISA status."
However, if a cash ISA is right for you, Martin has advised taking advantage of the current rates as these have more than trebled in the last year.
On the MSE website, he 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 Personal Savings Allowance - then for savings that would 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 MoneySavingExpert website offers a new ISA calculator to help those with a fixed-term ISA work out whether they should "ditch and switch" to a normal savings account instead. This looks at factors such as how much is in your ISA, what the interest rate is, and the penalty to withdraw your savings to determine what's right for you.
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