Money expert Martin Lewis has urged savers to ensure they are getting tax-free returns of nearly five per cent on their money as a key deadline looms.
The new financial year begins on 6 April, marking the last date individual savings account (Isa) holders can use their full £20,000 allowance for the year.
With just four weeks until the crucial deadline, providers have started ramping up the deals on offer to encourage savers to use up their allowances.
Several competitive rates are now on offer to maximise savings, up to a maximum of 4.68 per cent – nearly one point higher than the current Bank of England base rate of 3.75 per cent.
This is being offered by Trading 212, which also gives the option to open stocks and shares Isas. Mr Lewis’s Money Saving Expert service also points to Money Box, which is offering 4.52 per cent interest, and Virgin Money, at 4.15 per cent. All of these offers are easy access, meaning there is no limit on withdrawals.
Speaking on ITV’s The Martin Lewis Money Show, the personal finance guru said: “The reason it’s getting urgent right now is your annual allowance doesn’t carry over. And if you don’t use it, you lose it.
“You get a new £20,000 Isa allowance on the 6th April, as that’s a new tax year. But if you’ve got money to put in now, even if you don’t feel you’re going to use it next year and you haven’t got enough to fill the Isa allowance, you may as well get it in now just in case something happens next year and you’re more flush than you thought you would be.
“But the really important thing to understand about Isas is once you put your savings or your investment in an Isa, it stays tax-free year after year.”
An Isa is a tax-efficient pot which can hold cash or investments. Since 2017, holders have been able to add up to £20,000 a year to their account or accounts – combined if several –and they won’t be taxed on interest, capital gains or dividend income generated.
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When Isas were introduced in 1999, the total annual limit was £7,000, only £3,000 of which could be in a cash Isa. This began to rise in 2008 before hitting £20,000 in 2017.
In November, chancellor Rachel Reeves confirmed at the Budget that the cash Isa limit will be reduced from £20,000 to £12,000 in April 2027, while the stocks and shares Isa will stay at the higher limit.
It is understood that the move was made to incentivise younger savers to invest, with over-65s to be exempt from the change.
As of the latest HMRC data, there were just under 10 million active cash Isa accounts in 2023-2024, marking a 2.1 million increase compared with the previous year.