ISAs are individual savings accounts offering Britons tax-free interest payments. The allowance for 2021 to 2022 is £20,000 allowing people to save that amount without paying any taxes, but are they still worth investing in?
In the past he has urged savers to use their ISA allowance before the end of the tax year reminding them to “use it or lose it”.
However, the pandemic has changed the economic outlook for the nation as a whole, so does Mr Lewis still advise people to take advantage of their ISA allowance?
In his latest MSE’s weekly Money Tips he said: “For most people there’s no benefit of saving in a cash ISA (it’s just a savings account savers don’t pay tax on), so it’s worth simply focusing on getting the highest interest instead.”
Mr Lewis explained: “A cash ISA is just a savings account you don’t pay tax on.
“And its interest doesn’t count towards the PSA, so for the few who have big enough savings or earnings to break that limit, it’s a boon, as they can protect more savings from tax (if so you’ve only until April 5 to use this year’s £20,000 ISA allowance – it then stays tax-free year after year).
“Yet for most people there’s no benefit of saving in a cash ISA, so you simply should focus on getting the highest interest.
“So most should ditch cash ISAs for accounts that pay more.”
The financial guru conducted a Twitter poll and found 85 percent of the 9,000 who said they had cash ISAs, don’t pay tax on savings.
Mr Lewis added: “I know for years many had it drilled into them (often by me) that cash ISAs were nicer – but now people need deprogramming.
“Most should simply focus on the highest interest rates which come from normal savings.”
However, he did recommend a lifetime ISA for first time buyers as they will receive a 25 percent Government boost worth up to £1,000 a year on their first home.
He also said that stocks and shares ISAs are a really good place to start if people are looking to start investing.
Often though, he said savings accounts offer a better interest rate for people who are well within their savings allowances.
The financial expert recommended three savings accounts:
- Virgin Money 1 percent on up to £25,000
- Shawbrook Bank 1.6 percent
- JN Bank 1.96 percent
MSE’s weekly Money Tips email has 8.4m subscribers and is published on Wednesday. The latest Money Tips email can be viewed here.