News, Culture & Society

Maximise your £20,000 Isa allowance by ditching the big banks

Don’t forget your new £20,000 Isa allowance: Looking beyond the big banks could boost returns eightfold

  • The new tax year means a new allowance which can be spread across 4 accounts
  • Savers can currently save £250,000 without paying tax on interest due to rates
  • However rates could rise and Isas remain important for preserving your savings
  • The best rate available is 0.4% but most of these accounts come with restrictions

With the new tax year comes a new £20,000 tax-free Isa allowance.

For those keen to invest in cash savings accounts, it’s slim pickings as far as top rates are concerned. But there is still a wide disparity between the best and the worst deals.

At best, the big banks pay a miserly 0.05 per cent on easy access accounts — and 0.01 per cent at worst.

During the pandemic, savers have squirreled away £126bn in taxable easy-access accounts, a 16.2% rise over a year to £901bn

Savings rates have plummeted since the Bank of England slashed the base rate to a record low of 0.1 per cent in March last year.

Cash Isas also lost their sparkle after the introduction of the personal savings allowance, which lets you bank tax-free interest on ordinary accounts.

Basic-rate taxpayers can earn up to £1,000 interest a year tax-free. Higher rate payers get £500, while additional rate earners get nothing. 

This means even with the best ordinary easy-access account, paying 0.4 per cent, basic rate earners can hold £250,000 without paying tax.

During the pandemic, savers have squirreled away £126 billion in taxable easy-access accounts, a 16.2 per cent rise over a year to £901 billion. The amount paid into cash Isas increased by 0.58 per cent to £295 billion.

The personal savings allowance could be whittled away in the future, while a rise in rates might land savers a tax bill. 

Yet, any interest earned in cash Isas doesn’t need to be declared on self-assessment tax forms or count towards your savings allowance.

So where are the best cash returns? This week, popular savings provider Marcus launched its first cash Isa. 

The easy-access account pays a top rate of 0.4 per cent. But it is only available to its 500,000 existing savers who use its easy-access account or fixed-rate bond.

Other top rates include online accounts. Nationwide 1 year Triple Access and Paragon Triple Access both pay 0.4 per cent, with up to three withdrawals a year.

Leeds BS also has an account available at 0.4 per cent, with only four withdrawals a year. 

Other deals include Charter Savings Bank at 0.4 per cent, along with Coventry BS and Ford Money at 0.3 per cent with no withdrawal restrictions. Or try your local building society.

For example, Vernon and Tipton both pay 0.4 per cent, while Vernon’s regular savings Isa pays 1.45 per cent.

It may not be worth tying up your money for a year, with the best one-year rate just 0.45 per cent from Paragon Bank, Charter Savings Bank and Yorkshire BS.

However, Skipton BS launched a new 15-month cash Isa paying 0.6 per cent.

The top Junior cash Isa rate, where the maximum you can put in is £9,000 this tax year, is 2.5 per cent from Bath and Dudley building societies. Coventry, the second largest society, pays 2.25 per cent.

Any money parents or relatives put into a cash Isa for youngsters can be taken out when they turn 18.

Meanwhile, the charge for cashing in your Lifetime Isa early returned to a punitive 25 per cent yesterday from a temporary 20 per cent.

So now, for example, if you take out £1,000 — £800 of your own savings plus the £200 bonus — you will end up with £750 after a £250 exit fee.

sy.morris@dailymail.co.uk

Savings accounts

Read more at DailyMail.co.uk