Martin's one-month ISA warning
There’s just under a month left to take advantage of this year’s tax-free savings allowance. So Money Saving Expert Martin Lewis is here to tell us what an Isa is and to run down his best buys.
1. A cash Isa is just a tax-free savings account
Don't get scared off cash Isas - they're not complex, they're just savings accounts where you don't pay tax on the interest. Up until 6 April, anyone aged 16 or over can put £5,760 in, and after that the money stays tax-free year after year.
In normal savings your interest is taxed, so a basic taxpayer loses 20% of it, a higher rate tax payer loses 40% and a top rate payer loses 45%. In an Isa, you keep all of it.
2. If you don't use it by 6 April, you lose it
Once midnight bongs on 6 April, that tax year's allowance vanishes like Cinderella, so if you have cash and haven’t already used up this year’s allowance, consider putting it in an Isa now.
Admittedly, the next day you get a new, bigger £5,940 allowance, so you may ask "what's the rush?" Well, even if that's more than enough, play safe, put it in THIS ISA YEAR in case you get an unexpected windfall next year.
3. Get 1.75% AER variable with the ability to take money out
Cash Isa best buys change regularly. See Martin’s full Top Pick Cash Isas guide. Here are the current key highlights.
Many wrongly believe you need to lock money away in a cash ISA. National Counties (minimum £100) pays 1.65% AER and allows unlimited withdrawals. Britannia's a higher 1.75% AER (minimum £500), but it only allows two withdrawals a year; though unlike National Counties’ Isa, you can transfer in past years' Isas to up their rates.
4. Lock cash away to earn up to 2.75% AER
If you don't need to access the cash, then top fixed cash Isas pay more. Though beware locking in, in case other rates bounce back. The top one and two-year fixes are both from Britannia at 1.85% AER and 2.05% AER (2% AER and 2.2% AER for existing customers). The top three-year fix is from Coventry BS at 2.75%, but unlike Britannia’s Isas, it doesn’t allow old Isas to be transferred in.
5. Check your local credit union, some offer up to 2.75% AER
A few of these local non-profit savings and loan co-ops offer higher rate cash Isas. Voyager Alliance, open to those working in transport, pays 2.75%. See my Credit Unions guide for more best buys.
6. Follow my cash Isa golden rules
If you’ve already got a cash Isa, or are thinking about getting one, you should follow my golden rules:
a) Monitor your rate. If it drops, ditch and transfer your Isa to a higher payer.
b) Over-18s can use their Isa allowance to invest up to £11,520 in stocks and shares – although invest the full amount and you’ll have nothing left to put in a cash Isa.
c) All the cash Isas I’ve listed above are protected by the Government’s Financial Services Compensation Scheme (FSCS), where the first £85,000 saved per person, per financial institution is 100% guaranteed.