Martin Lewis: One week ISA 'use it or lose it' warning
Interest rates are up, so ISAs are back for many – yet you need to sort them by 5 April (or likely sooner).
Forget 31 December, that's just a sentimental date. The real year-end that matters is 5 April, as the end of the tax year has a material impact on your life and pockets.
This is especially true for ISAs. Each tax year, you get an allowance where you can put money away to protect it from tax or get perks (like a 25% bonus towards a first home). Here are some key ISA need-knows:
This article was first written by MoneySavingExpert.com (MSE) founder Martin Lewis and the MSE Team for our weekly email on 8 March 2023. It was updated by the MSE Team on 28 March 2023.
1. Don't delay. The deadline may be 5 April, but in practice you'll need to get money in sooner, as firms need time to process. So don't delay.
2. The benefit lasts. Once the money's in, it's tax-free year after year.
3. It doesn't carry over. Don't use a year's allowance and you lose it.
4. The max an adult can put in ISAs is £20,000 per tax year. Yet as you can do this each tax year, and it's been running since 1999, some now have £100,000s in ISAs protected from tax.
I've been doing this analogy since 2001, and it's still appetising...
Picture a cake, let's say a chocolate one... for cash (though it could equally be a strawberry one for shares). Normally a cake (cash savings) is unprotected, so the tax collector can come take a bite.
Yet picture an ISA wrapper as a piece of clingfilm you can put a certain amount of cake in. Once inside nothing changes, the cash in savings is still cash in savings, the only difference is... now the tax collector can't bite it.
5. ISAs are not always the best place for everyone to save. Even though they're tax-free, that can in some cases be defeated by the fact rates are higher elsewhere. So now over to the team to talk you through how to decide for each product, and the best buys...
Top cash ISAsSavings accounts that are NEVER taxed
A top cash ISA is just a savings account you can put up to £20,000 in per tax year where interest is NEVER taxed. Watch Martin's three key questions for anyone with ISAs (then check the up-to-date best buys below) as a good start point, or read on:
Most people don't pay tax on savings anyway. Since 2016, the personal savings allowance (PSA) means basic (20%) rate taxpayers can earn £1,000/year interest in ANY savings tax-free – while the limit's £500/year for higher (40%) rate taxpayers.
So currently you'd need over £29,000 (£14,500 at higher-rate tax) in top easy-access savings before you earned enough interest to be taxed, over £22,000 (£11,000) in the top two-year fix. Though if interest rates rise further, those amounts will get smaller.
Normal savings usually pay slightly more than cash ISAs. You'll see the rates below, the gap isn't huge, so those who aren't bigger savers should just go for the highest rates, which means top savings, not ISAs. To help, remember if you've under £20,000 – as unless rules change (unlikely), you could always just dunk that in an ISA in future – there's no harm going for higher rates now.
So cash ISAs are best for those with bigger savings, as once in an ISA, the interest doesn't count towards the PSA (so you can earn £1,000 interest on top of whatever your ISAs pay). Yet remember if you haven't used your cash ISA allowance this year, the clock's ticking.
All accounts have full UK £85,000 savings safety | ||
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Links go to our guides, as top players change often & we can update there | ||
Easy access(no notice to withdraw) | - Cynergy 3.2% (min £1)- Santander 3.2% (min £500) | - Chip 3.4% (min £1)- Family BS 3.26% (min £100)- Sainsbury's 3.07% (min £1,000). Top big name. Three free withdrawals a year. ----------------- - Barclays 5.12% (max £5,000). ONLY for Blue Reward customers. |
One-year fixes | - Santander 4.15% (min £500). 120 days' interest fee to withdraw early.- Virgin Money 4.11% (min £1). 60 days' interest fee to withdraw early. | - OakNorth 4.48% (min £1)No early withdrawals allowed. |
Two-year fixes | - Virgin Money 4.26% (min £1). 90 days' interest fee to withdraw early. | - OakNorth Bank 4.52% (min £1)No early withdrawals allowed. |
Already got cash ISAs? Most can massively BOOST the interest.
Cash ISA rates are much higher than they used to be, so check your rate now. If it's worse than those above, just ditch & switch...
- To move a cash ISA. Open up a new one (you can do this while putting this year's money in, or not), and within the application form it'll ask you if you want to transfer existing ISAs. Don't just withdraw the money or it'll lose its cash ISA status. All the ISAs above allow transfers in, though some have to be requested as part of your application, so make sure you check.
- Got a fixed-rate cash ISA? You can likely ditch, switch & gain too. Unlike normal fixes where you're locked in, fixed cash ISA rules mean you must be allowed to withdraw early – usually for an interest penalty. As rates are now much higher than in the last few years, many are better off paying the penalty to move to a new higher-rate ISA. Our fixed-rate cash ISA switch calculator works it out for you...
Carol emailed us after doing this: "Thank you Martin. My 1.5% fixed ISA had only eight months left, so I didn't think it'd be worth the trouble and penalty for switching. However, I found an ISA at 3.65% maturing in 10 months and transferred to that. I will be about £1,000 better off."
You can put £20,000 in an ISA, and that can all be in cash, all in shares, or split between them. Our expertise is saving, so we focus on cash ISAs, but we don't want you to think that means we're against stocks & shares ISAs – we just talk about them less as it's not what we do.
Investing is where you hope for higher growth, but understand you are risking some or all of the money you put in. Over the long run, it is often more lucrative than saving. With shares ISAs, you can invest and not pay dividend, capital gains or income tax on any gains or income. For help, including some of the cheaper platforms to invest in, see our Stocks & shares ISAs guide.
Lifetime ISAs for first-time buyersFill up your £4,000 allowance now
A Lifetime ISA (LISA) is the powerhouse financial move for many wanting to buy their first home, as you can put up to £4,000 per tax year in savings or investments and get a 25% FREE bonus from the state on it, so up to £1,000 per year. Do read our full Lifetime ISA guide to take you through key how-it-works info, but here are eight brief tips:
1. You can open one if you're aged 18 to 39.2. You must never have owned a home before.3. The home must cost under £450,000 (unchanged since 2017 – see our Outdated LISA rules costing first-time buyers campaign).4. You can't use the bonus unless your LISA's been open over a year. Open up a LISA with £1 now, even if you're not sure.5. It's an individual product, so you get the bonus, regardless of whether anyone you buy with is a first-time buyer or not (they can have one too if they are).6. You can also keep the money in until you're 60 and use it for retirement savings, though it's not the best route for most (see pension v LISA).7. Withdraw before you're 60, without buying a qualifying home, and there's an effective 6.25% penalty – so you lose that (see how the penalty works).8. If you get – or have – a LISA, max out what you can by 5 April.
To find out the highest-paying LISAs, see our Top cash LISAs list (investment LISAs tend to be for those using LISAs for retirement).
As Amy emailed: "I opened a LISA when they were relatively new in 2017 (after hearing through Martin). I managed to pay in the maximum for six years and bought my first home in 2022. So £6,000 free money! And a £30,000 deposit instead of a £24,000 one. Thank you!"
- Already got a LISA? You can up its rate by transferring to the top payer. Don't just withdraw the cash, you'll pay the 6.25% withdrawal penalty. Instead open the new LISA and ask the new provider to move the money across.
- Got a Help to Buy ISA? This was the predecessor of the LISA. See our Help to Buy ISA v LISAs comparison to decide which is best.
Junior ISAs for childrenEarn up to 4% interest on £9,000 per tax year
Children are mostly taxed just like adults (see children's tax). That means they can earn £12,570/year tax-free, and if they've no earnt income, up to £18,570/year tax-free from savings interest. So in practice, most children don't earn enough to pay tax.
Money from parents and step-parents (not grandparents) is different.
For under-18s, if these savings earn them more than £100/year interest from one parent (so roughly £2,500+ in a top children's account currently) or £200 from two parents, the whole amount is taxable at the parent's tax rate. It's done to stop parents stashing large amounts in their child's name.
Yet as explained above, most parents don't pay savings tax anyway because the personal savings allowance means basic-rate taxpayers can earn £1,000/year interest tax-free. For those parents who do, a junior ISA becomes stronger, as then all the child's interest is tax-free, even if given by a parent. Our full Junior ISAs guide takes you through it. Here are eight brief tips:
1. You can put £9,000 per tax year in a junior ISA.2. Once in, it stays tax-free year after year.3. You have until 5 April to put this year's allowance in.4. The money is locked away until they're 18.5. Then it is their money and their decision what to do with it (your gorgeous baby now may be different at 18. If you're saving for their uni costs, they may spend it on a drinking trip).6. The top junior ISAs currently pay up to 4% interest.7. The top 'normal' children's savings pay up to 5.5% interest.8. There are stocks & shares investment junior ISAs too.
- Already got a junior ISA? Can you boost the rate? If you find a junior ISA that pays more, just go and open the new ISA, and in the application form you'll usually be able to apply to transfer your existing junior ISA to it (assuming the new provider allows it – most do). See junior ISA transfers.
Up to 1m have £1,000ish in savings, but don't know it.
UK-born children aged 12 to 20ish had a Child Trust Fund (CTF) opened in their name, with £250 (£500 for those from low-income families) automatically paid in to it by the state. This tax-free savings product can't be touched until you hit 18 (which is now quite a decent number of people).
Lost track or weren't aware of the CTF? It's your money and there's an easy tool to reclaim it. To find out, either watch Martin's three-minute CTF reclaim video, or read our full Reclaim your Child Trust Fund help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
Up to 1m have £1,000ish in savings, but don't know it.
UK-born children aged 12 to 20ish had a Child Trust Fund (CTF) opened in their name, with £250 (£500 for those from low-income families) automatically paid in to it by the state. This tax-free savings product can't be touched until you hit 18 (which is now quite a decent number of people).
Lost track or weren't aware of the CTF? It's your money and there's an easy tool to reclaim it. To find out, either watch Martin's three-minute CTF reclaim video, or read our full Reclaim your Child Trust Fund help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
Up to 1m have £1,000ish in savings, but don't know it.
UK-born children aged 12 to 20ish had a Child Trust Fund (CTF) opened in their name, with £250 (£500 for those from low-income families) automatically paid in to it by the state. This tax-free savings product can't be touched until you hit 18 (which is now quite a decent number of people).
Lost track or weren't aware of the CTF? It's your money and there's an easy tool to reclaim it. To find out, either watch Martin's three-minute CTF reclaim video, or read our full Reclaim your Child Trust Fund help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
It worked for Trevor, who emailed us his success: "After reading your weekly email, I informed my grandson who we enrolled in 2002. He has just received £1,974, and my second grandson who is 17 will be able to claim his when he is 18, albeit a slightly lesser amount. Yippee, forgot all about them."
- Child still under 18? Ensure your CTF pays max interest. Many have pants rates, but you can transfer it to get 4%.
- Child now 18+? What to do with it. See our Maturing CTF help.
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17 September 2024
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