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Martin Lewis is urging Britons to “ditch” their old cash ISAs in order to secure better interest rates on savings accounts. This comes following a series of recent rate hikes from the Bank of England in an attempt to address the UK’s high inflation rate.
As a consequence of this, this interest rate rise has been passed on by banks and building societies to their savings accounts. Savers have benefited from the central bank’s decision-making with rates reaching as high as 5.7 percent.
The Money Saving Expert is pushing people to take advantage of these higher rates and shared advice for those with £8,000 in savings or more.
On The Martin Lewis Podcast, the finance expert called on anyone who opened a Cash ISA over six months to “ditch it”, citing the lack of competitive interest rates.
He explained: “It’s time for millions to reopen cash ISAs. The top pay 5.7 percent, and with rates rising, anyone with £8,000 in savings, check now if your money’s in a cash ISA.
“Cash ISAs usually pay slightly less than the equivalent normal savings. So it’s only for those people who would pay tax.
“So it’s roughly over £8,000 for a lower rate taxpayer and £16,000 for a higher rate taxpayer, over those amounts are when you want to start looking at it.”
The personal finance expert gave recommendations for some of the accounts currently on offer.
These include easy savings accounts from Chip which is paying savers a 4.15 percent rate and Leeds Building Society which is offering 4.2 percent.
Mr Lewis added: “If you are paying tax though, that Chip pays 4.5 percent but if you were paying 20 per cent tax on Chip, then after 20 percent tax your equivalent rate is 3.16 per cent.
“If you were paying 40 percent tax, your equivalent rate is 2.7 per cent, way lower than you would get in a cash ISA.”
According to the savings expert, people who are looking to leave their current cash ISAs will have to pay a penalty.
However, Martin Lewis suggests that this is a price worth paying in order to secure a better interest rate.
The Martin Lewis Money Show host said: “If you locked in more than six months ago your rates would have been terrible.
“You will have to pay a penalty to get out but generally you will earn more in the new ISA than the interest penalty will cost you because an interest penalty where the interest isn’t very high isn’t that much.”
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip
