Money-saving guru Martin Lewis has revealed two strong reasons why Brits with more than £4,000 in savings should think about topping up their cash ISA as soon as possible
Brits who have managed to stash away more than £4,000 in savings have been urged to ‘act now’. The warning comes amid growing concern Labour will make drastic cuts to cash ISAs in the coming months.
On his eponymous podcast, money-saving guru Martin Lewis says Chancellor Rachel Reeves has been ‘evaluating’ dropping the cash ISA allowance (which currently stands at £20,000) to as little as £4,000. “Now, if that does happen, and it is an if, it is thought to be announced in the Autumn budget… though anything could or couldn’t happen at any time,” he said.
“The concept behind cutting the allowance is that it would encourage people to put their money in shares ISAs instead.” The finance expert said he was ‘sceptical’ this would work, adding: “It is comparing apples with steak. They’re not the same thing.”
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So, if you have more than £4,000 in savings, and think you’ll be at risk of exceeding your Personal Savings Allowance it might be worth topping up your ISA now, before any new rules are implemented. This could result in you avoiding paying tax on your savings interest.
The government’s Personal Savings Allowance is set at £1,000 for those on the Basic rate Income Tax band, £500 for the Higher rate band, and £0 for Additional rate taxpayers. There is also a starting rate for savings, which is worth up to £5,000. “Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1,” states GOV UK.
Martin also pointed out that, following the start of the new tax year (April 6), the ‘ISA season’ is quickly coming to an end. This is where ISA providers tend to put out ‘better promotional deals than they normally do, so rates are relatively higher’.
“You may as well take advantage of those while you can,” the MSE Founder said. “Of course, I can’t guarantee that things won’t improve and therefore you might have been better to wait, but the general trend is to do it now.”
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Should I open a cash ISA?
Even if you’re not at risk of surpassing the Personal Savings Allowance, many cash ISAs are offering better interest rates than standard savings accounts – so they could still guarantee the best return. Some savings accounts with high interest rates will also have strict caps on how much money you can stash away each month (such as a £200 limit) – which isn’t great for those with large sums of savings.
According to MSE, Trading212 is currently offering the most competitive cash ISA with a 5.07 per cent variable. This includes a 0.72 per cent bonus for newbies for the first year – and only requires £1 to open the account.
Universal Credit claimants could opt to open a Help to Save account instead. This allows Brits to save £50 per month – but has a whopping 50 per cent interest rate. Over four years, this could make you £1,200. You can learn more about the Help to Save account here.
*This article does not constitute financial advice. Always read the full terms and conditions before opening up an ISA or adding money to one.
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