Martin Lewis has urged people to take advantage of an extra £1,000 from the government, warning that time is quickly running out to claim the cash. The Money Saving Expert has told savers to “use or lose” their ISA allowances before the end of the current tax year, which is just days away on April 5.
According to the Liverpool Echo, 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. A cash ISA account is a savings product where you don’t pay tax, up to a maximum of £20,000 for the 2021/22 tax year.
This means that you are able to claim up to £1,000 free each tax year – or up to £2,000 if you’re in a couple and you both have a LISA account.
But time is quickly running out to make the most of the free money, as the current tax year ends on April 5. To get the bonus payment, you’ll need to transfer any money over before April 6 – when the new tax year begins.
In the latest MoneySavingExpert email, Martin said: “If you’re a first-time buyer, check out the Lifetime ISA’s 25% boost worth up to £1,000/year on your first home.” He reminded people to keep in mind that however much you put away in a LISA will count towards your overall yearly £20,000 ISA allowance.
Anybody aged between 18 and 39 can open a LISA account. It can be used to put a deposit toward your first home or for retirement.
However, if you take out your money for anything other than these reasons, you’ll lose your bonus and pay a 25 per cent penalty. This works out at around asix per cent loss.
Martin said that 85 per cent of people are now better off ditching cash ISAs. This is because they generally have worse rates than normal savings accounts right now.
Instead of stashing your money into an ISA, you should be focusing on an account with the highest interest, he said. Martin explained: “Now the personal savings allowance means most DON’T pay tax on savings interest.
“The PSA launched in 2016, allowing basic (20%) taxpayers to earn £1,000/year of any savings interest tax-free and higher (40%) taxpayers £500. At today’s top easy-access 1% 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.”
The top easy-access account right now is from Virgin Money, which pays 1% interest on up to £25,000. The second top payer is Atom Bank which pays 0.9%.
If you can afford to lock your money away for a whole year, Shawbrook Bank is the top player paying 1.6% – but you have to put in at least £1,000. JN Bank will offer you 1.96% with its two-year fixed account if you pay in a minimum of £1,000.
In comparison, the best easy-access cash ISA is from Paragon and pays 0.8%. While the one-year fixed cash ISA from OakNorth Bank offers 1.28% interest and a two-year from UBL UK pays 1.6%.