Money saving expert Martin Lewis has encouraged savers to “ditch” cash ISAs, saying for most there was now “no benefit” in using them.
He said cash ISAs had worse interest rates than standard savings accounts and that for many people moving their cash now made sense.
“I know for years many had it drilled into them (often by me) that cash ISAs were nicer – but now people need deprogramming and pushed to just focus on the highest interest rates which come from top normal savings,” Mr Lewis said.
“Be brave, ditch the cash ISA and earn more.”
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The money expert said this was because since 2016, when the Personal Savings Allowance (PSA) launched, basic rate taxpayers can earn up to ￡1,000 interest each year from savings without paying any tax, with interest above that sum taxed at 20 per cent.
Those in the 40 per cent tax bracket are able to earn up to ￡500 a year, with any interest earned on top of that taxed at 40 per cent, while those in the top tax bracket see all their interest taxed at 45 per cent.
As a result, Mr Lewis said “you'd need nearly seventy grand saved to generate ￡1,000 interest. Which is why the vast majority of people – over 19 in 20 – don't pay tax on savings interest anymore”.
With that in mind, Mr Lewis said the better bet was to use a savings accounts which typically offers better interest rates.
‘Be brave, ditch the cash ISA and earn more,’ says the money expert
(PA Archive)
“For MOST, there's no benefit of saving in a cash ISA – so you simply should focus on getting the highest interest rate,” he wrote on his money saving blog.
He added that the primary reasons for retaining a cash ISA were if someone was close to reaching the threshold at which tax would be paid on savings, or if instant access to the savings pot was needed, as withdrawals tend to be straightforward from fixed cash ISAs.