In a recent Savings Champion reader’s poll, it was encouraging to see that nearly 74 per cent of those who took part said that they already have or plan to use their cash ISA allowance in the current tax year, which means they haven’t completely lost faith in this stalwart of the savings stable - just yet.
This April marks 20 years since ISAs were introduced, to replace Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs).
And according to Bank of England statistics, there is currently £279 billion protected in these tax-free savings accounts – nearly 24% of the whole savings market.
It could be argued that cash ISAs offer better value for wealthier savers only these days, as they are particularly important for anyone already exceeding their Personal Savings Allowance (PSA). But of course, if interest rates continue to rise - which we very much hope they will - more and more savers will find themselves in this situation. So, we are sure that cash ISAs will maintain their valuable position as a part of many savers’ portfolios.
The PSA was introduced in April 2016 and meant that up to 95% of savers no longer had to pay tax on their savings. Basic rate taxpayers have a PSA of £1,000, which means that they pay 0% tax on the first £1,000 of savings interest earned, outside of a cash ISA. For higher rate taxpayers, the PSA is £500 – but additional rate taxpayers do not have an PSA at all.
>> For more information about the Personal Savings Allowance, download our free factsheet
But, as ever, if you leave your cash with your high street provider, you are likely to be getting a raw deal.
For example - £20,000 deposited in the NatWest Cash ISA, paying a paltry 0.35%, would earn just £70 tax free per year. On the other hand, that same £20,000 deposited into the best paying easy access cash ISA, with Virgin Money paying 1.45%, would earn £290 per year.
Similarly, NatWest is paying 0.80% on its one year fixed rate cash ISA – whereas a far better rate of 1.74% can be found with Shawbrook Bank.
With all savings accounts, it is important to make sure that you are making that money work as hard as possible and arguably this is even more important with your cash ISAs. If you languish in a poor-paying account, you could be missing out on valuable tax-free interest.
Take a look at our independent best buy tables or call us on 0800 011 9705 for help finding the most suitable accounts for you.
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