MARTIN Lewis has issued a six-month warning to anyone who has opened a certain bank account.
The Money Saving Expert shared the tip on his podcast this week and it could gain you hundreds of pounds.
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Speaking on his latest episode of the BBC 5 Live show The Martin Lewis Podcast, Martin warned savers that it might be time to “ditch” their Cash ISA.
He urged that if you opened a one of these accounts more than six months ago, that it likely has a “terrible” rate due to rising interest rates.
Cash ISAs can be opened by anyone 16 or over and you can deposit a maximum of £20,000 into one per tax year.
The consumer champion even pointed out that it might even be worth paying the inevitable penalty charge to close the account because you’ll make it up in interest.
He said: “Millions of people should be opening or reopening cash ISAs, the top cash ISA rate currently pays 5.9%.
“And crucially because savings interest rates have gone up, or at least the top savings interest rate have gone up, millions of people are now going to be potentially paying tax on their savings interest which they haven’t been doing for years and a Cash ISA protects you from that.”
Martin explained that those who already have Cash ISAs open should consider paying the penalty to close it early because the better rate will make it worth it.
That’s because the interest you could earn from changing accounts could be greater than the cost of the penalties – if you have more than £8,000 in the account.
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The Bank of England (BoE) has raised rates 13 times since December 2021, and most recently they went up by 0.5 percentage points from 4.5% to 5%.
Most banks have passed on these new rates to savers.
Martin said: “If you locked in more than six months ago your rates would have been terrible.
“You will have to pay a penalty to get out but generally you will earn more in the new ISA than the interest penalty will cost you because an interest penalty where the interest isn’t very high isn’t that much.”
He pointed out that to make this decision you could use an online calculator if you’re thinking about switching.
These will work out the calculation for you so you know for sure you’ll be better off.
The money expert then went on to read an email he had received from a listener who had ditched and switched so and found they could get a £982 boost.
He did this after using a calculator on the MSE website, while others have handy calculators too such as Hargreaves Lansdowne and Candid Money.
Fan of the show Paul wrote in and said: “I had two fixed rate ISAs which incurred £346 in penalties in total for early withdrawal.
“But by switching to a new ISA I gained an extra £1,328 interest for the remaining period so I’m £982 better off.”
During the episode Martin highlighted some of the top offers available currently and accept transfers.
While, NatWest is paying 5.7% in its top cash ISA one year fix, with a 90 days’ interest early withdrawal penalty.
Shawbrook Bank is offering 5.53% on a minimum £1,000, with a 90 days’ interest early withdrawal penalty.
Martin went onto explain the best places for savers to keep their cash.
He explained that for people who want to invest they can have a look in to Stocks and Shares ISAs.
Although he did warn that you only get £20,000 a year in total on ISAs so you “have to make a choice about which one’s right for you”.
He also explained how premium bonds are also tax free and that rates are going up to 4% but that Cash ISA rates are higher.
For those on Universal Credit Martin recommended looking into the Help to Save scheme which has a potential 50% bonus.
And for first-time buyers he recommended looking at a Lifetime ISA or LISA which can give you a 25% boost on your savings towards your first home.
Below we explain what an ISA is and the different types you could get.
What are ISAs?
ISAs (Individual Savings Accounts) 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 are 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.
That said, here are the four different types of 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.
Again, there are 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 onto 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 maxed 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 of £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.
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