For this week’s guide, Anna Bowes, savings expert from The Private Office, looks at cash ISAs and reminds us all of an important deadline…
Millions of us have been squirrelling away savings into a cash ISA ahead of the chancellor’s spring statement today.
Rumours that Rachel Reeves was going to cut the tax-free cash ISA limit – which she has since confirmed will not be happening today – pushed people to make the most of the £20,000 cap.
And, if you haven’t done the same, there is still time to do so.
“If you haven’t maxed out your ISA allowance yet, now’s the time to act,” Bowes says.
“There are less than two weeks left to use this year’s allowance, and once it’s gone, it’s gone. And why not get ahead by using next year’s allowance as soon as possible? The sooner you do, the more tax-free interest you can earn,” she adds.
She explains that millions of people are being dragged into paying more tax due to frozen personal tax allowances and higher interest rates – so it’s good news that the cash ISA limit isn’t about to change.
Back in March 2021, Rishi Sunak, the chancellor at the time, announced that many personal tax allowances would be frozen until the 2025/26 tax year.
Bowes says: “That freeze was later extended to 2027/28, meaning even more people have found themselves paying income tax for the first time, or tax at a higher level.”
The personal allowance, which is the amount you can earn before paying income tax, has been stuck at £12,570 since April 2021.
The thresholds for the basic, higher and additional rate taxes have also been frozen.
According to the Office for Budget Responsibility, by 2028/29, these frozen thresholds will mean nearly four million more people paying income tax, three million more moving into the higher rate bracket, and 400,000 more pushed into the additional rate. This process is known as fiscal drag – and it’s a term you’re likely to hear again today after the spring statement.
“Savers are feeling the impact too. The Personal Savings Allowance (PSA) has been frozen since it was introduced in 2016, meaning that as savings interest rates rise, more and more people are fully utilising their PSA with smaller deposits,” Bowes adds.
“While basic-rate taxpayers can earn £1,000 of interest tax-free, higher-rate taxpayers only get £500, and additional-rate taxpayers get nothing. With higher interest rates over recent years and more people facing the 40% and 45% tax rates, many savers are now facing unexpected tax bills on their savings.
“This is why ISAs remain such a valuable tool. Any interest earned within an ISA stays completely tax-free, regardless of the amount, making them a great way to shelter your savings from the taxman.”
Here are the top easy access cash ISAs on the market…
And the top paying fixed term cash ISAs…
