EVERY year, Brits can save up to £20,000 tax-free in an ISA (Individual Savings Accounts), but a third of UK adults don’t even know this allowance exists.
New data from NatWest highlights 35% of Brits don’t have an ISA, and one in five young adults (18-24) don’t know ISAs exist. Social media is shaping financial awareness, with 17% of 18-24s turning to TikTok for savings advice.
The upcoming Spring Statement, due on March 26, could see the Cash ISA allowance drop from £20,000 to £4,000 per year according to industry reports. While half of survey participants held at least one type of ISA, regional differences were significant, with London exhibiting the highest ownership rate (77%) and Wales the lowest (57%).
When a cash ISA is nicer https://t.co/it4HdAZtiK #MartinLewis
— Martin Lewis (@MartinSLewis) November 5, 2024
“Our NatWest Savings Index highlights a widespread lack of understanding of ISAs, meaning many people across the country are missing out on valuable tax-free savings opportunities,” said Mo Watt, Customer Journey Manager at NatWest. “It’s particularly concerning that younger adults, who stand to benefit most from long-term saving, have limited knowledge of how ISAs work and the financial advantages they could offer, with more than a fifth unaware of any ISA product.
“ISAs are an accessible way to grow your savings tax-free, but our research highlights a clear gap in understanding. The banking industry must do more to educate people to make informed financial decisions, ensuring they can take full advantage of savings products available to them.”
As the end of the tax year approaches, many savers should start thinking about their ISAs - here are the five most frequently asked questions in the UK about Cash ISAs
The Cash ISA questions (and answers) every saver needs to know:
Will cash ISA rates go down?
The Bank of England has been reducing the base interest rate since late last year, most recently cutting it to 4.5% in February, and economists predict more cuts to come. Therefore, we could see savings rates lowered in response.
But, Paul Went, Managing Director of Savings at Shawbrook, says: "Right now, there are some great opportunities to take advantage of good rates. There are still multiple accounts paying way above inflation, offering the chance to grow your money in real terms."
How do cash ISAs work?
A Cash ISA is a tax-free savings account which could make it a great option for maximising returns. They can be a particularly useful tool for those close to exceeding the Personal Savings Allowance (PSA).
Paul adds: "Our recent analysis of CACI data found that 6.1 million savings accounts are potentially earning taxable interest as of October 2024, a substantial increase since October 2021 when this figure was a mere 147,000.
"With ISAs allowing up to £20,000 to be saved tax-free per year, they are a great way to shield hard-earned money from the taxman."
As ISAs are individual accounts, for couples this can mean up to £40,000 can be saved tax-free each year.
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What happens when a cash ISA matures?
An account matures when the fixed period ends. For example, a one-year fixed ISA opened on the April 6 2024 would mature on the April 6 2025. When the Cash ISA matures, typically the savings will be moved into a different product with a lower interest rate if the saver hasn’t communicated what they will do with the account.
"To avoid moving to a reduced rate, savers should take action," says Paul.
"This may mean renewing with their current bank on to another fixed product, moving to an easy access account, or looking to transfer their savings elsewhere.
"With over 2.4 million savers about to see their accounts mature this March and April, now is the time to consider all ISA accounts available."
Savers might want to set up reminders for future maturity dates, to remind them to take a moment to research the options in advance.
Which cash ISA should I get?
There are many types of Cash ISAs so remember to spend time reviewing and choosing the right account for you. The most popular accounts include an Easy Access ISA and a Fixed Rate ISA.
"For those who may want an emergency savings pot that’s easily accessible, an Easy Access account might fit the bill," says Paul.
"It is important to note interest rates may change over time so checking the rate over time could be the difference between building wealth and stalling. For those keen to lock their money away and have the certainty of a fixed term e.g. 1,2,3, or 5 years, a Fixed Rate ISA may be worth considering. Depending on the provider, interest can be paid monthly or yearly."
When should you transfer into a cash ISA?
ISA transfers can be done at any time and won’t affect your current ISA allowance.
"There are many reasons why savers may transfer into a Cash ISA for example when their current interest rate is lower compared to other rates on the market." says Paul.
"Transferring has the potential to boost savings without affecting their tax-free status. But, with the tax year end approaching this April, now is the time to focus on using as much of the £20,000 tax-free allowance as possible before the deadline even if the saver does choose to switch ISA accounts."
ISA allowances operate on a use-it-or-lose-it basis so the unused portion of the annual allowance will not roll over to the next tax year.
