Money Saving Expert’s Martin Lewis spoke in the latest Money Tips newsletter about ISAs, encouraging people with poorly-paying cash ISAs to switch to a higher payer. He provided some tips on how ISAs work and if they are the best option for individuals.
For those who have cash ISAs, Mr Lewis said people should check what they’re earning currently and if they can get a better rate they can “apply for a new cash ISA”.
He said: “Usually as part of the application, you’ll be asked if you want them to transfer your existing cash ISA over for you (don’t just withdraw the cash to move it, then it loses its ‘cash ISA’ status).”
For those who don’t pay tax on savings, the money expert said they should “ditch” any cash ISAs they have.
However, he said people who are close to paying tax on their savings may want to keep some cash ISAs to protect from future tax.
He also said people who want to withdraw funds from their cash ISAs may also want to retain these products, although this may involve “big interest penalties”.
The money saving expert shared a table comparing the rates for the top standard savings accounts to the top cash ISAs, for different types of accounts.
For easy access, the best standard savings accounts were Skipton Building Society with 2.55 percent and Zopa with 2.15, compared to a 2.25 percent cash ISA with Coventry Building Society.
For a one-year fixed term saver, Kent Reliance offers the best standard account with 4.45 percent, while Shawbrook Bank offers 3.9 percent for a cash ISA, followed by Santander with 3.7 percent.
For a two-year fixed term saver, for standard accounts, Tesco Bank offers 4.77 percent and Kent Reliance offers 4.75 percent, while the best cash ISA is with Kent Reliance, at 4.3 percent, with Santander at 4.2 percent.
Mr Lewis provided some other tips for boosting the interest on their savings, including setting up a Help to Save account, which offers a 50 percent bonus.
First-time buyers aged 18 to 39 may also want to consider getting a 25 percent bonus with the Lifetime ISA, which can also go towards their pensions.
Regular savings accounts also offer better rates, with the potential to earn 5.25 percent with monthly accounts, or 5.12 percent on smaller savings.
The money expert also explained whether or not a cash ISA is suitable for a person will depend on if they pay tax on their interest from their savings.
In line with the personal savings allowance (PSA), basic taxpayers can get the first £1,000 of interest each year tax-free.
People who pay the higher 40 percent rate on their income get £500 tax-free, while people on the 45 percent tax rate don’t get an allowance.
Rising interest rates mean people need less in their savings before they pay tax, with the start point for basic taxpayers at £21,000 in the current top two-year fixed rate saver, or £39,200 in an easy access account.
Savers never pay tax on cash ISAs and the interest does not count towards their allowance, with the choice to put in up to £20,000 each tax year.
Mr Lewis said: “If you’re over the PSA limit, cash ISAs are a winner, but for everyone else, as they tend to pay less than normal savings, there’s little point in a cash ISA unless you’ll pay tax on other savings.”
The Bank of England has repeatedly increased the base interest rate in response to soaring inflation, with the base rate currently at 2.25 percent.
The central bank is expected to increase the rate again as the Consumer Price Index rate of inflation is currently at 10.1 percent and is expected to rise further.
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.