Savers have just a few days to top up their accounts to get free money from the Government.
Money Saving Expert Martin Lewis has urged savers to “use or lose” their ISA allowances before the end of the current tax year.
A cash ISA account is a savings product where you don’t pay tax, up to a limit of £20,000 for the 2021/22 tax year, but if you have a Lifetime ISA (LISA), you can put away £4,000 each year and the Government will give you a 25% bonus on top of the cash you save. This means you can get £1,000 free each tax year – or £2,000 free if you’re in a couple and you both have a LISA account that you max out.
But time is running out to make the most of your LISA free money, as the current tax year ends on April 5, and you will need to transfer any money over before April 6, the new tax year, to get any bonus payment.
Introduced in 2016, LISAs are a type of ISA created to help people save either for their first home or for retirement. And Martin Lewis is a fan, as those saving for their first home won’t find a regular savings account from a bank or lender that pays 25% interest. However, you need to bear in mind that anything you pay into a LISA will count towards your overall yearly £20,000 ISA allowance.
You can open a LISA account if you’re aged between 18 and 39, but if you take out your money for anything other than retirement or a home purchase, you’ll lose your bonus and pay a 25% penalty, which works out at around a 6% loss.
But the picture is bleaker for standard ISAs, with Martin stating that 85% of people are now better off ditching them in his latest newsletter. 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.”
The reason for his change of heart is because the Personal Savings Allowance (PSA) launched in 2016, resulting in most people not paying tax on savings interest. He said: “The PSA launched in 2016, allowing basic (20 percent) taxpayers to earn £1,000 per year of any savings interest tax-free and higher (40 percent) taxpayers £500.
“At today’s top easy-access one percent rate, you’d need a hundred grand saved to generate £1,000 interest. So these days, most people – over 19 in 20 in fact – don’t pay tax on savings anymore.”