MILLIONS of savers should ditch their cash ISAs, according to Martin Lewis.
The founder of MoneySavingExpert.com said that while cash ISA rates can now pay up to 4.3%, for many they’re a waste of time.
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In the latest MoneySavingExpert newsletter, Martin Lewis said that only those with savings of more than £39,000 should think about opening a cash ISA.
Martin said that this is because most don’t pay tax on savings interest so it’s not worth it.
This has been the case 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.
He said: “Even with interest rate rises, many who have cash ISAs should ditch them.
“As interest rates have risen, you now need far less in top savings before you pay tax – at one point, over two hundred grand was needed.”
But even though interest rates are up, many savers won’t benefit from a cash ISA.
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This is because basic taxpayers don’t start paying tax on savings of £21,000 or below in the top two-year fixed bonds accounts.
And basic rate taxpayers with less than £39,200 in an easy-access savings account don’t pay any tax.
The advice comes after the Bank of England raised interest rates to 2.25% last month – the seventh consecutive rise in a row.
And higher interest rates allow savers to get a higher rate of return when they put away their hard-earned cash.
New rates have finally been passed on to savers and returns of up to 5% can be bagged, according to MoneyFacts.
And on the latest episode of the Martin Lewis Money Show Live the consumer champion said: “The top rate savings have increased, so this really is a moment to take a look at what your savings are paying and to say – can I earn more?”
For example, the top-paying easy-access savings account available right now gives savers 2.55% in returns, according to MoneyFacts.
And customers looking to lock away their cash in a fixed saver could get up to 5.10%.
But be aware that savings rates and account availability changes each day.
Right now the best rates can be found with a three-year fixed bond at 5% as the best-paying ISA is only paying savers 4.35%, according to MoneyFacts.
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.
But most importantly if you need easy access to your savings but are happy to lock some cash away – check out the top paying fixed-rate bonds paying the most in interest – you could get up to 5% in returns.
For example, Gatehouse Bank’s 3-Year Fixed Woodland Saver pays account holders 5% back on savings of £1,000 or more.
If you’re looking for an easy-access savings account – which allow you to take your money in and out anytime – you could get over 2% in returns.
For example, you could earn up to 2.55% interest if you open up a Skipton Building Society Double Access Saver.
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.co.uk 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.
