Published on: 28 May 2019
Due to poor interest rates and alternative options that can produce better returns, Cash ISAs have fallen out of favour in recent years.
Since the introduction of the personal savings allowance in 2016, savers have been avoiding Cash ISAs even more. This allowance is the tax-free £1,000 interest that basic rate taxpayers can earn (this is reduced to £500 for higher rate taxpayers).
This allowance, combined with the awful interest rates has seen a steep decline in the popularity of Cash ISAs. But that may change in the coming years.
For many people, Cash ISAs are still an important part of their savings, as the interest earned is not taxed, even after they have hit their personal allowance limit.
Data from Moneyfacts shows that an average one-year Cash ISA rate hit its highest level in three years this January, standing at 1.35% which is a significant improvement on the 1.08% held previously.
However, it is important that savers don’t get complacent, as there are still great deals to be had with a bit of work. Remember to transfer your Cash ISA if you see a better rate. Contact your existing ISA provider and complete an ISA transfer form. You won’t lose any tax benefits, but be aware that there may be other penalties, depending on the terms of your agreement. If in doubt, speak to your ISA provider.
If you are seriously committed to saving, consider fixing your Cash ISA for a better return. With a fixed rate account you must lock the money away for a particular term (often two to five years), but will benefit with a greatly increased interest rate.
Fixed rate accounts are great for earning more money, but before you sign up, you should be confident that you can leave that money for the entire term, as you may struggle to access it in case of emergency. Speak to your ISA provider for more information.
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