SAVERS should make the most of their hard-earned cash and open a cash ISA now as Rachel Reeves hints at a major change.
Cash ISAs let you earn interest and withdraw money tax-free making them a much better option than regular savings accounts.
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You can currently deposit up to £20,000 into one each tax year, with the deadline to top up for 2024/25 just days away – April 5.
But Spring Statement documents reveal this £20,000 allowance is earmarked for reform.
There had been speculation the Chancellor would reduce the allowance to £4,000 in her Spring Statement speech in the House of Commons yesterday.
No such announcement was made, but the Spring Statement documents hinted the change wasn’t completely off the table.
Documents said future reforms to the ISA system will “get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission”.
It suggests the £20,000 cash ISA allowance could yet be reduced as the Government looks to encourage savers to invest more instead.
Myron Jobson, senior personal finance analyst at interactive investor, said: “With a shake-up of the ISA regime increasingly looking like a matter of when, not if, and with the cash ISA allowance potentially in the crosshairs, savers would do well to make the most of their allowance while they still can.
“To make the most of a cash ISA, savers should shop around for the best interest rates, consider fixed-term options for better returns, and ensure they use their full allowance before the tax year ends.”
According to comparison website Moneyfactscompare.co.uk, the best cash ISA currently on the market is with Moneybox.
Its variable rate cash ISA is paying out 5.32% AER interest with a minimum investment of £500. Any interest is paid once a year.
Because the ISA comes with a variable rate this 5.32% interest rate could go up or down at any point though.
Savers looking for a guaranteed interest rate can opt for a fixed rate ISA deal instead.
Moneyfactscompare said the best one-year fixed deal on the market is with Cynergy Bank which is offering a 4.55% AER interest rate.
You need to put in at least £500 to open the ISA while any interest is paid annually.
Different types of ISA
Consumer reporter Sam Walker reveals the different types of ISAs available to savers.
- Cash ISAs – come with annual deposit limits of £20,000. Can be opened by those aged 18 or over.
- Stocks and Shares ISAs – come with annual deposit limits of £20,000. Can be opened by those aged 18 or over.
- Lifetime ISAs – come with annual deposit limits of £4,000. Can be opened by those aged 18 to 39.
- Junior ISAs – come with annual deposit limits of £9,000. Can be opened by those aged 0 to 17.
- Innovative Finance ISAs – come with annual deposit limits of £20,000. Can be opened by those aged 18 or over.
The best two and three-year fixed ISAs are also with Cynergy Bank, which is offering interest rates of 4.44% AER and 4.43% AER, respectively.
Both pay out interest once a year and require a minimum £500 to open.
Meanwhile, the best Junior ISA is currently with Coventry Building Society.
It is offering 4.25% variable interest and you can open an account with just £1.
TOP ISA TIPS
Cash ISAs are so popular because they offer savers a guarantee of not losing any money.
This is in comparison to Stocks and Shares ISAs which can fluctuate in value based on your investments.
However, Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a mixed portfolio of ISAs will see you get the best bang for your buck.
You can add money into multiple ISAs at one time, so long as you don’t breach the £20,000 annual allowance.
It’s also worth shopping around for the best deals too, Sarah said.
She explained: “How you divide your annual allowance between cash and stocks and shares will depend on your time horizon, risk profile and objectives, but most people should consider a mix of both.
“If you’re planning a cash ISA, don’t just go with your usual bank, because online banks and savings platforms are competing hard for your money at the moment, so it really pays to shop around and consider all the alternatives.”
If you are worried about opening a Stocks and Shares ISA, research is key as you don’t want to invest badly.
Websites like AJ Bell or MoneySavingExpert.com offer top tips on how best to go about opening one.
In any case, the returns you get on Stocks and Shares ISAs over the longer term compared to Cash ISAs are usually much bigger.
Just bear in mind with investing there is always a risk attached.
Myron Jobson, from interactive investor, said: “Those willing to take on some investment risk could see better long-term returns through a stocks and shares ISA.
“While the value of investments can go up and down, history shows that stock markets tend to outperform cash over extended periods.”
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