MARTIN Lewis has issued a six-month warning to anyone who has opened a certain bank account.
The money-saving expert shared this tip on his podcast this week and it could save you thousands of pounds.
Speaking on the latest episode of BBC 5 Live The Martin Lewis Podcast, Martin warned savers that it might be time to “skip” their Cash ISA.
He urges that if you opened a Cash ISA more than six months ago, it could have “terrible” rates due to rising interest rates.
Consumer advocates even point out that paying the inevitable penalty fee to close an account may even be worth it since you’ll save that money.
“Should millions of people open or reopen a Cash ISA, the top cash ISA rate currently paying is 5.9%,” he said.
“And the important thing is that because savings rates have gone up, or at least the top savings rates have gone up, millions of people now have the potential to pay taxes on savings interest they haven’t done in years, and the cash ISA protects you from that.”
Martin explains that those who have opened Cash ISAs should consider paying the penalty to close it early as better rates will make it worth it.
That’s because the interest you can make from changing accounts can outweigh the penalty costs – if you have more than £8,000 in the account.
“If you locked in more than six months ago, your rates are going to be terrible,” says Martin.
“You will have to pay a penalty to get out but overall you will make more money in the new ISA than the interest penalty will cost you because the interest penalty when the interest rate is not so high will not be much.”
He points out that to make this decision, you can use an online calculator if you’re thinking of switching.
These will calculate for you so you know for sure that you will be better.
The money expert then went on to read an email he received from an audience that had ignored and switched it on and found that they could have received a £982 boost.
He did this after using the calculator on the MSE website.
Fan of the show Paul wrote and said: “I had two fixed rate ISAs, incurring a total of £346 fines for early withdrawals.
“But by switching to a new ISA I made an extra £1,328 in interest for the rest of the time so I made £982.
During the episode, Martin highlighted some of the top deals available and accepting transfers.
Meanwhile, NatWest is paying ISA-leading 5.7% in cash for a year, with a 90-day early withdrawal penalty.
Shawbrook Bank is offering 5.53% of the £1,000 minimum, with a 90-day early withdrawal penalty.
Martin goes on to explain the best places for savers to keep their cash.
He explained that for those who want to invest, they can look at the Stocks and Stocks ISAs.
Although he did warn that you only get a total of £20,000 a year for the ISA, so you “have to make a choice as to which one is right for you”.
He also explains how premium bonds are also tax-free and that that rate will increase to 4% but a higher Cash ISA rate.
For those using Universal Credit, Martin recommends looking into the Help for Savings program that has a potential 50% bonus.
And for first-time buyers, he recommends looking at a Lifetime ISA or LISA that can help you increase your savings by 25% on your first home.
Below we explain what an ISA is and the different types you can get.
What is ISA?
ISA (Individual Savings Account) is a savings account where you never pay taxes on any interest earned.
You can put up to £20,000 in one of the accounts each tax year.
But there are different types so you should look for the one that best suits your needs.
In addition, you should also have a regular savings account – there is no limit on how much you can deposit into them.
That said, here are four different types of ISAs.
Cash ISAs can be opened by anyone aged 16 or over and you can deposit up to £20,000 into an ISA per tax year.
Again, there are different types, including easy-access cash ISAs, fixed-rate ISAs, and help-to-buy ISAs.
Easy-access ISAs allow you to add funds and withdraw at any time with no fees.
Fixed-rate ISAs tend to offer higher interest rates than easy-access ISAs, but you’ll likely have to pay a fee for withdrawals before the term ends.
Help-to-Buy ISAs are no longer available, but if you’ve set up an ISA before, they’re designed to help first-time buyers climb the property ladder.
You can deposit up to £200 per month and receive a 25% government bonus.
That means if you spend all your money with £2,400 in the current tax year, you will get £600 from the government.
ISA Stocks and Shares
The Shares and Shares ISA can be opened by anyone aged 18 or over and the maximum amount you can put into one is £20,000 per tax year.
There is more risk in opening one of these types of ISAs because the money you deposit is invested in stocks and bonds.
However, while the value of the ISA can plummet, it can also increase dramatically.
Usually, you also have to pay some fees with the Stock and Shares ISA, so that’s another thing to keep in mind.
Anyone aged 18 to 39 can open a Lifetime ISA and deposit up to £4,000 per tax year into one.
You can keep adding money to an account until you’re 50 and must make your first payment on an account before age 40.
Like the Help to Buy ISA, you get a 25% bonus on any individual contribution.
So if you add £4,000 to this one tax year, you get £1,000 free from the government.
There are two different types of Lifetime ISAs – the Cash Lifetime ISA and the Stocks and Stocks Lifetime ISA.
A Lifetime Cash ISA could be worth it if you’re saving for your first home and planning to buy within a few years.
The Stocks and Stocks Lifetime ISA may be worth more if you are saving for retirement.
With any Lifetime ISA, you’ll have to pay a fee if you want to use the money for anything other than your first home or retirement.
For example, if you have £800 worth of savings, you’ll earn a 25% bonus of £200 on top – bringing your total stake to £1,000.
If you wish to withdraw the full amount early, you will be charged a 25% early withdrawal fee for the full amount – £250.
That means you will end up with £750, which is a £50 loss of your own money.
Anyone aged 18 or over can open an IFISA (Innovative Finance ISA) and deposit up to £20,000 into an account per tax year.
The company that gives you one of these ISAs will use your money to lend to a borrower or business, and the idea is that you’ll get interest back based on the interest charged on the borrower’s loan.
But you could lose money through IFISA if the people you lend to can’t afford to repay the loan.
Another disadvantage is that it can take a while to withdraw from one.
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