A MARTIN Lewis’ MoneySavingExpert.com fan has revealed how he earned over £1,300 in free cash after making a quick switch.
The money-saver bagged the extra cash by ditching two ISAs for a new one which pockets him more interest.
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He realised he could make more money after using MSE’s “Should I ditch my fixed cash ISA? calculator”.
The reader explained in the consumer website’s latest newsletter: “I was pleasantly surprised.
“I had two fixed-rate ISAs which incurred early closure penalties of £346 in total.
“But by switching to a new ISA with a better interest rate I’m gaining an extra £1,328 interest, so I’m better off by £982.”
What are ISAs?
ISAs (Individual Savings Account) are savings accounts where you never pay tax on any interest earned.
You can put up to £20,000 into one of the accounts every tax year.
But there’s different types so it’s worth looking around to find the one that best suits your needs.
Plus, it might be worth getting a regular savings account too – there’s no limit on the amount of money you can put into them.
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That said, here are the four different types of cash ISAs.
Cash ISAs
Cash ISAs can be opened by anyone 16 or over and you can deposit a maximum of £20,000 into one per tax year.
There’s different types, including easy-access cash ISAs, fixed-rate ISAs and Help to Buy ISAs.
Easy-access ISAs let you add money in which can be taken out at any time without a charge.
Fixed-rate ISAs tend to offer higher interest rates than easy-access ISAs, but you will probably have to pay a fee for withdrawing money before the end of the term.
Help to Buy ISAs aren’t available anymore, but if you previously set one up, they are designed to help first-time buyers on to the property ladder.
You can put a maximum of £200 in per month and get a 25% bonus from the government on top.
That means if you maxxed yours out with £2,400 this current tax year, you would get £600 from the government.
Stocks and Shares ISA
Stocks and Shares ISAs can be opened by anyone 18 or over and the maximum amount you can put into one is £20,000 per tax year.
There is more risk involved in opening one of these types of ISAs as the money you deposit is invested in shares and bonds.
But, while the value of the ISA can plummet, it can also increase sharply.
Usually, you have to pay a number of fees with a Stock and Shares ISA too, so that’s another thing to bear in mind.
Lifetime ISA
Anyone between 18 and 39 can open a Lifetime ISA and deposit a maximum of £4,000 per tax year into one.
You can keep adding money into one up until you are 50 and must make your first payment into one before the age of 40.
Like with a Help to Buy ISA, you get a 25% bonus on top of any personal contributions.
So if you added £4,000 into one this tax year, you would get £1,000 free from the government.
There are two different types of Lifetime ISA – a Cash Lifetime ISA and a Stocks and Shares Lifetime ISA.
A Cash Lifetime ISA can be worthwhile if you are saving for your first home and are planning to buy within a couple of years.
A Stocks and Shares Lifetime ISA might be more worthwhile if you are saving for retirement.
With any Lifetime ISA you will have to pay a fee if you want to use the money for anything other than your first home or retirement.
As an example, if you had savings worth £800, you would earn a 25% bonus of £200 on top – bringing your total pot to £1,000.
If you wanted to withdraw the entire pot early, you would have to pay a 25% early exit fee on the full amount – £250.
That means you would end up with £750, effectively losing £50 of your own money.
IFISAs
Anyone 18 or older can open an IFISA (Innovative finance ISA) and deposit a maximum £20,000 into one each tax year.
The company offering you one of these ISAs will use your money to lend to borrowers or businesses and the idea is that you get interest back based on the interest rate charged on the borrower’s loan.
But you can lose money through an IFISA if the people you’ve lent to can’t afford to repay the loan.
Another disadvantage is that it can take a while to withdraw money from one.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
