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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 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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The best ISA rates this week 21.01.22

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. UBL UK increased rates on selected fixed ISAs, resulting in its five year fixed ISA paying the top rate for its term at 1.76% AER, and OakNorth Bank’s one year fixed ISA saw an increase of 0.10% and now tops the one year ISA chart at 0.96% AER. Additionally, SAGA launched a highly competitive easy access ISA paying 0.60% AER, which includes a bonus of 0.10% for 12 months.

Savers should be aware that the accounts highlighted below are the top-paying accounts available to new customers, and higher rates may be available to existing customers only. Savers can compare the best savings rates available to existing customers by visiting our savings charts and selecting these accounts in the refine search section.

Information about accounts and rates are correct at 1pm on Friday 21 January 2022 but can change at any time.

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The best savings rates this week 20.1.22

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. Ikano Bank also increased the rates on a selection of its fixed bonds this week, while Skipton Building Society and Yorkshire Building Society added new accounts to their product range.

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What are the best ISA investment funds in January 2022?

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. Although interest rates are forecast to rise, the returns on cash deposits are likely to remain low with Stocks and Shares ISAs an alternative for investors looking for a better return, providing they are comfortable with a higher level of risk.

The summaries below show the overall best performing ISA funds in January 2022. Please remember that past performance is no guarantee of the future.

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Savers comparing deals have been urged to act swiftly to take advantage of top rates, with some changing since last month’s inflation announcement.

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ISA rate increases spark hope for an ISA season for savers

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With just over 11 weeks to go until the end of the 2021/22 tax year, a battle for position at the top of the Moneyfacts best buy tables has triggered hope for savers of a better ISA season.

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The best savings rates this week 13.1.22

13th January 2022

Over the past week we have seen many banks and building societies dramatically increase rates on different terms of their fixed rate offerings, resulting in Atom Bank topping the two-year chart paying 1.60% AER.

Over the past week we have seen many banks and building societies dramatically increase rates on different terms of their fixed rate offerings.

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What are the best ISA investment funds in January 2022?

20th January 2022

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.

Global stock markets ended 2021 on a high, with the FTSE 100 finishing 14.3% up on the start of the year.

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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.

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Would you be better off with a stocks and shares ISA over cash ISA?

29th March 2021

With just a week left for savers to use up the 2020/21 ISA allowance, time is running out for savers to make the most of their £20,000 tax-free limit

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