Savers have been urged by Martin Lewis to 'use of lose' ISA allowances before the end of the 2021/22 tax year, The money saving guru says money has to be transferred before April 6 when the new tax year begins.
There are different types of ISAs, including a cash ISA account savings product where you don’t pay tax, up to a limit of £20,000 for the 2021/22 tax year. Whereas, if you have a Lifetime ISA, you can put away £4,000 each year and the government will give you a 25 per cent bonus on top of the cash you save, the Mirror reports.
This LISA 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 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.
Writing in the lastest MoneySavingExpertemail, Martin wrote: “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 .
Savers are reminded 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 per cent interest.
You can open a LISA account if you’re aged between 18 and 39 and 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 per cent penalty, which works out at around a six per cent loss.
When it comes to cash ISA rates, Martin issued a bleak statement that 85 per cent 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 per cent) taxpayers to earn £1,000/year of any savings interest tax-free and higher (40 per cent) taxpayers £500.
“At today's top easy-access 1 per cent 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.”
Financial adviser at Furnley House, Matt Hughes, has explained more about the upcoming ISA deadline on April 5, 2022, Leicestershire Live reports. Mr Hughes said: “If you have money held in either cash or investments accounts, one important way to offset inflation worries is to make sure you are not paying unnecessary tax on any interest or gains paid.
"The easiest way to do this is to use your Individual Savings Account (ISA), and the 5th April deadline to use your 2021/22 allowance is fast approaching.” Matt said that there are four types of ISAs available to adults:
- Cash ISA, which is used to hold cash savings.
- Stocks and shares ISA, which can include shares in companies, unit trusts and investment funds, corporate bonds, government bonds.
- Innovative finance ISA, these can include peer-to-peer loans, or loans to other people or businesses.
- Lifetime ISA, you must be 18 or over but under 40 to open a Lifetime ISA. The aim of this account is to help you save for your first home or retirement. You can put in up to £4,000 each year, until you are 50 and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
He said: “You can open more than one type of ISA in any tax year, so you can combine your £20,000 into cash, and stocks and shares ISAs.
“You can invest or save up to £9,000 a year into a Junior ISA for a child. Whilst children typically don’t pay tax on savings or investments accounts, money held in an ISA will keep its tax efficient wrapper after the child turns 18.”
Nearly a third (31 per cent) of Isa savers plan to increase their subscriptions this year, despite global market volatility, a survey has found. As the end of the tax year approaches on April 5, just one in 50 (2 per cent) Isa holders plan to scale back their contributions.
The research was conducted for investment platform Freetrade, which said US technology stocks are among the most popular with its Isa holders in 2022, and comparison review website InvestingReviews.co.uk. Some 1,000 Isa holders were surveyed, including 700 with stocks and shares Isas.
The findings were released at a time when inflation is expected to hit eight per cent in the coming months, eroding the value of people’s savings held in cash further.
