MARTIN Lewis is urgently warning savers to check that they’re not missing out on £100s in free cash.
The consumer champion said in the latest MoneySavingExpert newsletter that millions should ditch their cash ISA.
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Martin said that this is because most don’t pay tax on savings interest so it’s not worth investing in a lower-paying interest ISA right now.
He said: You’d need to save £34,500 in top easy-access savings before you earned enough interest to start being taxed, or £23,000 in the top two-year fix.
“Most savers have far less. So, all your interest is tax-free.
“The main focus should be on moving your money to the highest interest rate, that’s usually top normal savings accounts not cash ISAs, so many should ditch and switch.”
Savers have had to pay tax on savings since 2016 when the personal savings allowance or PSA was first introduced.
It means that each year you get a £1,000 savings allowance, which is the amount you can earn in interest before you pay any tax.
For higher-rate taxpayers, the allowance is £500 a year instead.
But even though interest rates are up, many savers won’t benefit from a cash ISA.
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And normal savings accounts are offering higher interest rates right now.
Higher interest rates allow savers to get a higher rate of return when they put away their hard-earned cash.
Right now the best rates can be found with a one-year fixed bond at 7% while the best-paying ISA is only paying savers 4.25%, according to MoneyFacts.
Those who wish to ditch their ISA and switch to a normal savings account can withdraw their cash now but it often comes with a penalty, according to Martin.
He said: “As rates are now much higher than they were, many would be better off accepting the penalty then transferring to a new higher-rate cash ISA.”
How can I make my savings go further?
Sign up for a Lifetime Isa (LISA) to get thousands of pounds in free cash if you’re a saver.
You could get up to £32,000 for free from the government.
A LISA is a savings account for anyone aged 18-49. It’s opened to help people save for buying a first home or for their retirement.
You can put in a maximum of £4,000 a year until you’re 50, and the government adds an additional 25% bonus onto what you put in.
You’ll also get tax relief if you set up a self-invested personal pension. If you are a basic rate taxpayer paying into these pensions, you’ll get 20p from the government through tax relief, for every 80p you put in.
If you don’t need access to your savings and are happy to lock some cash away – check out the top-paying fixed-rate bonds – you could get up to 7% in returns.
For example, First Direct’s Regular 12-month Saver pays 7% back on savings between £25 and £3,600.
If you’re looking for an easy-access savings account – which allows you to take your money in and out anytime – you could get up to 3.2% in returns.
Those who sign up for a Tipton & Coseley Building Society Saver can earn 3.25% interest on savings between £100 and £100,000.
How to find the best rates
With your current rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you an eternity.
Research websites like MoneyFacts and price comparison websites such as Compare the Market, Go Compare and MoneySupermarket will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
