Savy savers who’ve taken out a cash ISA should ‘probably ditch it’ in favour of a standard savings account, Martin Lewis has said.
The popular ‘money saving expert’ was once a proponent of the saving scheme, but now has advised people to store their savings elsewhere, The Liverpool Echo reports.
Writing in the blog of his MoneySavingExpert website, he said while he once told fans ‘money was nicer in an ISA’, tax changes mean it’s no longer the best way to go for most of us. The change was the introduction, in 2016, of the personal savings allowance, which allows basic and higher rate tax payers to earn up to £1,000 or £500 worth of interest on standard savings per year.
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That means unless you’ve got huge amounts of cash built up, you’ll usually earn more interest on a saving account than in an ISA.
He wrote: “These days, the cash ISA’s main boon is that interest from it doesn’t count towards the PSA: it’s still tax-free on top of that. That means for the few with savings (or earnings) big enough to break that limit, it’s a winner, as they can protect more interest from tax.
“You get a £20,000 ISA allowance each tax year and, crucially, money you put into an ISA stays tax-free year after year.
“Yet for MOST, there’s no benefit of saving in a cash ISA – so you simply should focus on getting the highest interest rate. Over the last few years, cash ISAs have tended to have WORSE rates than normal savings across all categories.”
He added: “I know for years many had it drilled into them (often by me) that cash ISAs were nicer – but now people need deprogramming and to be pushed to just focus on the highest interest rates which come from top normal savings. Be brave, ditch the cash ISA and earn more.”
Martin provided a table showing the latest best-paying savings accounts, compared to the best-paying ISAs. You can view it at: https://blog.moneysavingexpert.com/2022/04/martin-lewis-ditch-cash-isa/
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