Money-saving expert Martin Lewis has issued crucial advice about cash ISAs, highlighting their importance as the financial year-end approaches. With speculation that Chancellor Rachel Reeves might reduce the annual contribution limit from £20,000 to £4,000, savers are urged to act swiftly to maximise their tax-free savings.
On his ITV Money Show Live this week, Mr Lewis advised: "So cash ISAs use them by April 5. A cash ISA is just a savings account where the interest is never taxed. It's no more complicated than that."
He continued, stressing the urgency: "You can put in £20,000 per tax year, in a cash ISA or in ISAs in general. Go quickly though as if you need to fill this year's while as the deadline is April 5 in practice many of the product providers close early for admin reasons."
Mr Lewis further explained the long-term benefits: "The important thing to understand is once your money's in a cash ISA it's tax free year after year. Let me explain it this way. So you could put, if you were lucky enough to have the money, you could put, if you haven't used your ISA this year £20,000 in now.
"Then on April 6 you get another £20,000 that you could put in. Now you've got £40,000 in. If things don't change the year after you could put another £20,000 in."
Mr Lewis explained that under current rules, individuals can continue to add the £20,000 a year, which is why some people have hundreds of thousands of pounds in cash ISAs. He emphasised the importance of beating the deadline just in case you have the money to put in next year, advising not to miss out on using this year's - you max out when it is appropriate for you.
"When asked by a viewer if 80 is too old to take out a cash ISA, Martin responded: "Unlike other ISAs there's no age limit on cash ISAs but as I'm assuming you're a pensioner actually whether you would pay tax on savings anyway is the other question. "Mr Lewis also pointed out some cash ISAs he currently recommends.
He stated the best cash ISAs for easy access with a variable rate were Trading 212 at 5.25% (including first three months 0.75% bonus), top straight rate was Tembo 4.8% and best big name is Post Office at 4.4%.
He cautioned that these three are variable so the rates could drop at any time.For the best 1-year fixed rates, he mentioned Castle Trust on 4.49% and Shawbrook on 4.48%.
He added that ISAs were generally offering better interest rates than actual savings accounts. Mr Lewis said there are several things people need to know about cash ISAs.
On the topic of tax-free personal allowance, he stated: "The amount everybody can earn each year in earnings and interest on savings that you don't pay tax on. The standard figure is £12,570 a year. There's also the personal savings allowance.
If you are a 20 or 40 per cent rate taxpayer you are allowed to earn a certain amount of interest separately tax-free. "Using a diagram, Mr Lewis clarified what individuals would earn in interest:
Mr Lewis also drew attention to the 'Startings Savings Rate', which he claimed was not frequently discussed. He explained: "It can let you earn up to £5,000 interest tax free in savings.
"So what it says is you can earn up to £5,000 on top of your £1,000 as a basic rate taxpayer of interest tax free as a low earner. If you have earned income under £12,570, which is the standard tax allowance, you can earn £5,000 on top of that in savings in this starting savings allowance in savings interest, which is untaxed.
"For every pound you earn above £12.570, you lose a pound of the £5,000. " Mr Lewis illustrated his point with an example: if you earned £13,570, your starting savings allowance would only be £4,000."
He explained: "For people where all of their money was generated by savings interest they would have £12,570, their normal tax-free allowance, they would have their £5,000 starting savings allowance and they would have their £1,000 savings allowance as a basic rate taxpayer which means you can earn £18,570 tax-free if all your money came from savings interest."
Mr Lewis added: "And then you could have an ISA on top for £20,000 a year, which would be tax-free, and you could put money into Premium Bonds, £50,000 of which would be tax-free. "Amidst speculation about the Spring Statement, Chancellor Rachel Reeves is rumoured to possibly slash the £20,000 cash ISA limit to £4,000.
Addressing audience concerns, Martin commented, "The only rumour I've heard is dropping the future allowance from £20,000 to £4,000.
"Apparently it's not coming in the Spring Statement - I don't have that confirmed that's other people's reports. ""But it might come in the Autumn Budget. It's still being considered no decision's been made. If that's right let's just make it plain for everyone.
"Some people are saying 'take money out of cash ISAs' that would be bonkers - bonkers. ""What it would mean is you could put £20,000 in this year - you could put £20,000 if she doesn't drop it on April 6. But it may be in the year after I can only put £4,000 in. So I've only got £44,000 protected. I wouldn't take any money out of those, that's still protected. It'll be very unlikely they'll change that.
""The rumour is talking about being able to put less money in cash ISAs in future to try to encourage people to invest. I don't think that would work as I think people who want to save want to save and even people who want to invest are different. So I think it's a false equivalence but if they do it they're talking about lowering the amount you can put in a cash ISA so don'tlet that stop you putting money in a cash ISA now. "
