Martin Lewis has issued a warning as time is running out to get £1,000 free from the government.
The Money Saving Expert founder urged people to “use or lose” their ISA allowances before the end of the current tax year. This account is a savings product where you pay no tax. It has a maximum limit of £20,000 for the 2021/22 tax year. This with a lifetime ISA can save £4,000 and qualify for a 25% bonus on top of the money you save from the government. This means you can get £1,000 free each tax year – or £2,000 free if you’re in a relationship and you both have a LISA account that you max out.
However, Mr Lewis issued a warning to those who want to benefit from the scheme as there are only a few days left to take part as the current tax year ends on April 5.
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This means you must transfer money before April 6, the new tax year, to get a bonus payment from the government. In MoneySavingExpert’s latest email, Martin said: “If you’re a first-time buyer, check out the 25% increase in lifetime ISA worth up to £1,000/year on your first home.”
Keep in mind that the amount you set aside in an LISA will count towards your overall annual £20,000 ISA allowance. But if you’re saving for your first home, you won’t find a regular savings account with a bank or lender that pays 25% interest.
You can open a LISA account if you are between 18 and 39 years old. It can be used to make a deposit towards your first home or for your retirement. If you withdraw your money for anything other than these reasons, you will lose your bonus and pay a 25% penalty, which equates to a loss of around 6%.
When it comes to cash ISA rates, Martin released a grim statement that 85% of people would be better off ditching them. This is because cash ISAs generally have lower rates than normal savings accounts right now.
Instead of hiding your money in an ISA, you should focus on an account with the highest interest, he said. “Now the Personal Savings Allowance means most DO NOT pay tax on savings interest,” Martin explained.
“The PSA was launched in 2016, allowing basic taxpayers (20%) to earn £1,000/year in tax-free savings interest and higher taxpayers (40%) £500. At today’s best readily available rate of 1%, you would need a hundred dollars saved to generate £1,000 in interest. So nowadays most people – more than 19 out of 20 in fact – no longer pay tax on savings.
The easiest account to access at the moment is Virgin Money, which pays 1% interest on up to £25,000. If you have a smaller sum, it will pay 2.02% on £1,000. The second highest payer is Atom Bank which pays 0.9%. If you can afford to tie up your money for an entire year, Shawbrook Bank is the best player paying 1.6% – but you need to invest at least £1,000.
JN Bank will offer you 1.96% with their two-year fixed account if you pay a minimum of £1,000, or the best five-year fix comes from Monument with 2.4%. By comparison, the best easy-to-access cash ISA comes from Paragon and pays 0.8%, while OakNorth Bank’s one-year fixed cash ISA offers 1.28% interest and one of two. years of UBL UK pays 1.6%