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Should I save in a Cash Individual Savings Account (ISA)?

James Blower

Head of Digital
Published: 28/01/2022

With about £300 billion saved in them, Cash ISAs have been incredibly popular with savers since their introduction in 1999. However, the introduction of the Personal Savings Allowance in April 2016 has led some savers to question whether they are still useful.

As we approach the end of the tax year, our Head of Digital, James Blower, looks at the circumstances in which certain types of savers should consider using their ISA allowance.

We are about to enter what has historically been dubbed ‘ISA season’. This is because the period between February and April typically sees savers looking to use their ISA allowances before the end of this tax year and then take advantage of the new allowance for the next tax year, which starts on 6 April. 

The introduction of the Personal Savings Allowance means banks now automatically pay interest without tax deducted. Basic rate taxpayers can earn £1,000 in savings interest before they need to pay tax and higher rate taxpayers can earn £500 in interest before paying tax. This means about 95% of savers no longer pay tax on their savings.

Despite this, the appetite for ISAs hasn’t waned and there are still several types of savers for whom, and circumstances in which, ISAs should still be considered an option:

 

1. Existing Cash ISA savers

Anyone who has opened an ISA every tax year since 1999, and used the full allowance, has been able to shelter over £201,500 plus interest from the taxman and, in April, will be able to add a further £20,000 to that. Those savers who have used the allowance every year will, depending on interest rates they saved in, have somewhere in the region of £250,000 to £300,000 saved in ISAs. If you already have cash ISAs from previous tax years, it is worth considering retaining them to keep those tax-free allowances.

 

2. Additional rate taxpayers

Those taxpayers who earn more than £150,000 a year pay 45% tax and get no personal savings allowance, so they should consider cash ISAs.

 

3. First-Time Home Buyers

Lifetime ISAs, known as LISAs, are available for those aged 18 to 40, and you get a 25% bonus from the Government each year on top of anything you save.  First-time buyers who save £4,000 get £1,000 from the Government. The bonus is paid every year until the saver is 50 years old.

Those saving for a home will find the 25% bonus very attractive and should certainly consider a LISA if they are saving for a deposit, but only if they will definitely buy a house with it, or don’t need that money before they are 60. This is because, if you take some or all the money out of it before then (other than to buy a property) you pay a 25% penalty on it.

 

4. Savers who may need access to their cash 

Savers considering fixed-rate bonds but who want access to the cash during the term might prefer the flexibility that fixed rate ISAs have. Almost all cash ISA fixed rate bonds allow some form of access with a penalty interest charge.

 

5. Where the interest rate is better or very similar

Currently, several easy access ISA accounts pay the same or better rates than their ordinary counterparts. In these circumstances, even those savers who are not going to use their personal savings allowance may want to take out an ISA to take advantage of the tax-free status of the ISA, which can be carried on in future years. If interest rates continue to rise, this may be useful in future tax years if the amount of savings required to generate interest above the Personal Savings Allowance falls. Also, it is possible that the Personal Savings Allowance could be changed in the future.

To compare the latest ISA products and interest rates, visit https://moneyfacts.co.uk/isa/best-cash-isas/

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The Best Residential Mortgage Rates 27.1.22

This week several lenders have increased rates on some of their mortgage deals, including Barclays Mortgage, NatWest and Lloyds Bank. Both of our remortgage and home movers charts have seen rate rises, while the good news for those looking to get onto the property ladder is that our first-time buyer charts have seen a slight decline in the lowest rate available. Saying this, mortgage rates remain highly competitive, with many lenders offering deals that are just a few percentage points below some of the lowest rates in our charts this week.

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The best savings rates this week 27.1.22

This week sees many banks and building societies increase rates on their fixed rate bonds, and Investec Bank plc re-launch its Online Flexi Saver which pays a chart-topping 0.71% AER. Habib Bank Zurich plc, UBL UK and Union Bank of India (UK) Ltd are among the banks that increased rates on several competitive bonds. Habib Bank Zurich plc’s 12 month pays 1.36% AER, UBL UK’s three year and five year terms pay 1.85% AER and 2.10% AER respectively, and Union Bank of India (UK) Ltd pays 1.40% AER on its one year term, 1.45% AER on its 18 month, 1.60% AER on their two year term and 1.75% on its three year term.

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Equity release market is on the rise

The equity release market saw a return to growth in 2021. Record amounts of property wealth were accessed by customers, according to industry body the Equity Release Council, which says the market rose by 24.8% last year, to a total of £4.8 billion.

Annual lending to customers aged over 55 broke the previous record of £3.94 billion, which was set in 2018, as the fourth quarter of 2021 turned out to be the “busiest on record”. Between October and December, customers borrowed £1.3 billion. Average loan sizes increased as more than 76,000 new and returning customers took out products. These included lifetime mortgages and home reversion plans.

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Borrowers spoilt for choice as holiday let market explodes

Holidays in the UK have soared in popularity as the pandemic has hobbled travellers. Luckily, the number of holiday let loan products has trebled since 2020, making it easier than ever to tap in to this demand.

Analysis from Moneyfacts.co.uk shows that there are now 231 buy-to-let mortgages eligible for holiday lets, a 25% increase in the number of available deals available since September 2021. Looking further back, in August 2020 there were just 74 similar deals available.

There are more lenders entering this part of the market too, with 27 brands - mainly building societies - offering holiday let loans. This is an increase from 25 in September 2021 and 21 in April 2021.  

The average cost of fixed-rate mortgage deals available on holiday lets is also becoming more competitive. In January 2022 you would pay an average rate of 3.92%, down from 4.14% in September 2021.

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Mortgage lenders court landlords with raft of new deals

24th January 2022

Lenders are backing the buy-to-let sector, with many more mortgage deals now available to landlords at higher loan-to-values, new research shows.

Lenders are backing the buy-to-let sector, with many more mortgage deals now available to landlords at higher loan-to-values, new research shows.

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The best ISA rates this week 21.01.22

24th January 2022

This week saw a number of banks and building societies increase rates on fixed ISA products. Close Brothers Savings increased the rate on its already competitive two year fixed ISA, which now pays 1.20% AER.

This week saw a number of banks and building societies increase rates on fixed ISA products.

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The Best Residential Mortgage Rates 20.1.22

20th January 2022

A quiet week among mortgage lenders has left many of our lowest deals unchanged from those available last week. Barclays Mortgage continues to offer the lowest rate for those who are looking to either remortgage or move home. With a rate of 1.11%, it remains on offer for homeowners who are looking to fix for two years and have 40% equity in their property.

A quiet week among mortgage lenders has left many of our lowest deals unchanged from those available last week.

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The best savings rates this week 20.1.22

20th January 2022

This week saw a number of banks and building societies increasing rates and launching new products. JN Bank increased the rates on its five year fixed rate bond, resulting in it topping the chart at a rate of 2.12% AER.

This week saw a number of banks and building societies increasing rates and launching new products.

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Two and five year mortgage rates hit historic lows

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Although the number of mortgage deals have almost halved since March, the average mortgage rates on two and five-year fixed deals have hit historic lows

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What are the best ISA investment funds in January 2022?

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Global stock markets ended 2021 on a high, with the FTSE 100 finishing 14.3% up on the start of the year and the S&P 500 close to a 27% gain over the same timescale. Performance in 2022 will be dependent on many factors, including inflation, economic growth and the progress of the pandemic but also monetary policy and the potential for more interest rate increases.

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The best savings rates this week 20.1.22

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This week saw a number of banks and building societies increasing rates and launching new products. JN Bank increased the rates on its five year fixed rate bond, resulting in it topping the chart at a rate of 2.12% AER.

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The best ISA rates this week 21.01.22

24th January 2022

This week saw a number of banks and building societies increase rates on fixed ISA products. Close Brothers Savings increased the rate on its already competitive two year fixed ISA, which now pays 1.20% AER.

This week saw a number of banks and building societies increase rates on fixed ISA products.

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