Money-saving expert Martin Lewis has urged people with a particular type of savings account to close it as soon as possible. Martin says it’s pretty much useless for people to have one.
In the past, Martin has encouraged people to open ISA savings accounts. Now he has changed his advice.
A cash ISA is a type of savings account that allows you to earn interest on your savings without paying tax on them. Those who accompany them can save up to £20,000 per person per tax year, reports the Manchester Evening News.
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However, you can only open one cash ISA account per year. While Martin Lewis initially urged savers to open one, he has now shared why his stance has changed and why people should now ditch the account.
Writing on his MoneySavingExpert website, he explains that even with Chase’s easy-to-access 1.5% app bank rate, you’d need nearly £70,000 to generate £1,000 in interest. This is due to everything that changed with the launch of the Personal Savings Allowance (PSA) in 2016.
A PSA means 20% base rate taxpayers can earn up to £1,000 a year in interest on all savings without paying tax on it. After that, their interest is taxed at 20%.
As Martin explains, top 40% taxpayers can earn up to £500 a year. After that, their interest is taxed at 40%.
The top 45% of taxpayers do not receive PSAs – all of their interest is taxed at 45%. To qualify for the cash ISA, you must earn above this threshold to feel the benefits.
Those with savings or income large enough to exceed the limit can further protect the interest from tax. “Be brave, ditch the cash ISA and earn more,” Martin said.