Martin Lewis says savers should ‘probably ditch’ cash ISAs. The Money Saving Expert founder issued a stark warning to newsletter subscribers.
“I know for years many had it drilled into them (often by me) that cash ISAs were nicer – but now people need deprogramming and pushed to just focus on the highest interest rates which come from top normal savings,” Mr Lewis said.
“Be brave, ditch the cash ISA and earn more.” Mr Lewis said: “You’d need nearly seventy grand saved to generate £1,000 interest. Which is why the vast majority of people – over 19 in 20 – don’t pay tax on savings interest anymore”.
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“For MOST, there’s no benefit of saving in a cash ISA – so you simply should focus on getting the highest interest rate,” he wrote. The warnings from Mr Lewis are due to everything changing with the Personal Savings Allowance launching back in 2016.
A PSA means basic 20 per cent rate taxpayers can earn up to £1,000 interest a year from savings without paying any tax on it. After that their interest is taxed at 20%.
40 per cent tax payers can earn £500 a year – after which their interest is taxed at 40 per cent. Top 45 per cent taxpayers don’t get a PSA. Instead, all their interest is taxed art 45 per cent. So to benefit, you’d need to earn ABOVE that threshold.
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