Use it or lose it! Clock is ticking on ISAs
Time is running out to use this year’s individual savings account (ISA) allowance before the tax year ends on April 5.
Savers can put up to £20,000 into ISAs each tax year, with any returns free from income tax and capital gains tax. But unlike some allowances, it doesn’t roll over, so if you don’t use it, you lose it.
ISAs are important because returns from savings and investments held in these tax-efficient wrappers are free from both income tax and capital gains tax. The good news is that some experts claim that this ISA season could be one of the most competitive to date, with cash ISA providers in particular battling to attract savers before ISAs limits change next year.
From now until 5th April 2027, you can save the full £20,000 allowance into a cash ISA, but after this date, the cash ISA limit is set to reduce to £12,000 for those aged under 65. The aim of this change is to encourage more people to invest rather than put their money into savings accounts.
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However, more than two in five (44%) cash ISA holders say they plan to stick with cash ISAs, according to analysis by Opinium, saying they have no plans to open a stocks and shares ISA before the rule changes. Only 16% of cash ISA holders are considering moving money from a cash ISA into a stocks and shares ISA ahead of 2027,
Matthew Howlett, research manager at Opinium, said: “While awareness of the upcoming changes is high, people remain cautious, with only a small number planning to open or transfer money into investment products ahead of 2027. We also see that younger savers appear much more open to investing than older generations, and a significant gap between how likely men and women are to have stocks and shares ISAs.”
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ISA rates increase
If you are looking to pay into a cash ISA this year, interest rates have ticked up recently, with some providers now offering returns higher than 4.50%. The best easy access cash rate, for example, has risen from 4.31% in January to pay more than 4.60% today, according to latest research by Moneyfactscompare.co.uk.
Market-leading cash ISAs currently include Trading 212’s cash ISA paying 4.88%, Plum’s cash ISA paying 4.66% and Tembo’s cash ISA paying 4.55%. All these rates include short-term bonuses, so you may want to consider transferring to an alternative account once they go.
Chris Henderson, Save and Pay Director at Tesco Bank, said: “An easy access ISA allows you to get hold of your money whenever you need it. You can put cash in, and take cash out, with no penalty. Some of these are ‘flexible’ meaning you can take money out and replace it later (in the same tax year), without it counting towards your ISA allowance. This can be helpful if you plan to save close to the full yearly allowance, but you also need to access cash along the way.
“If easy access isn’t a requirement for you then fixed rate ISAs offer the certainty of a guaranteed return in exchange for you agreeing to lock your money away with no withdrawals for a set period, for example 12 months.”
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