While cash Isas have fallen out of favour, average rates have hit a three-year high. We explain how to maximiseyour Isa allowance before the tax year ends on 5 April, including how to juggle flexible Isas with high-interest current accounts to get the best of both worlds.
Before the introduction of the in April 2016, cash Isas were a no-brainer. But when we surveyed 8,794 Which? members about their finances in February 2019, only half of those with a cash Isa said they've paid into their account this tax year.
With interest from ordinary savings tax-free up to £1,000 per year, or £500 for higher-rate taxpayers, most savers no longer need an Isa to lower their tax bill.
Simply plumping for the best rates should be your priority - but here we explain our top tips for using the Isa rules to get the most benefit out of your savings.
If you don't use your Isa allowance by 5 April 2019, you lose it.
That may not be much of a concern unless you have significant savings, as the annual allowance is currently £20,000.
For example, £22,750 saved in the BLME one-year fix paying 2.20%, would earn £500 in annual interest, meaning an Isa would be the only way for a higher-rate taxpayer to avoid paying 40% income tax on any excess savings.
Cash Isas remain free of tax no matter how much they grow. This means you can use the Isa wrapper to future-proof your money in case regulations or economic circumstances change, including scenarios like:
If you're married, your spouse or civil partner will be entitled to anso they can inherit your Isas without losing the tax-free wrapper, should you die first - less than half of Which? members (42%) were aware of this, in our survey.
To grow your nest egg, cash Isas can also be moved into a stocks and shares Isa whenever you choose. You could potentially lose some or even all of your money, so never invest any money you might rely on in an emergency. However, keeping savings in cash also carries risk, as inflation can erode the spending power of your money over the years.
Flexible Isas let you withdraw some of your savings and then replace it in the same tax year without it counting towards your allowance.
This means you could take money out of an Isa and put it in a (paying up to 5%) or the best non-Isa on the market, before replacing it before the end of the tax year (5 April) to make sure it remains within a tax-free Isa wrapper going forward.
Only a third of variable cash Isas offer this feature - providers don't have to offer flexibility at all, or may only offer it on certain products - but there are some attractive deals (see our table of the best flexible rates, below).
Usually, you can only open one cash Isa in each tax year but a handful of banks which allow you to spread your annual allowance across multiple products - known as 'portfolio cash Isas.'
For example, both Aldermore and Ford Money Isas accept transfers in from previous tax years, allow flexible withdrawals, and let you mix and match your savings across their entire cash Isa range.
Even if you don't wish to add new money to your Isa, make sure any existing accounts are earning a decent rate.
If your savings are with any of the big high street banks, you can easily get a better deal, particularly if you opened it more than a year ago.
You can see our list of the worst Isa rates offered by high street banks in the past 12 months in the table below.
|Bank||Isa||Rate (AER) on £10,000|
|Halifax||Variable Isa Saver (closed)||0.10%|
|Halifax||Instant Isa Saver (closed)||0.20%|
|Post Office Money||Cash ISA - Online Isa Easy Access Issue 10/11 (closed)||0.25%|
|Bank of Scotland||Access Cash Isa - Isa Saver||0.35%|
|Lloyds Bank||Cash Isa saver||0.35%|
|NatWest||Cash Isa||0.35% (0.60% at £25K, 0.85% at £50K)|
For example, if you had £10,000 in the lowest rate Halifax Isa, currently paying a miserly 0.10%, you could improve annual returns by £135 by switching to market leaderVirgin Money Double Take e-Isa (issue 5)which pays 1.45% and has no limit on transfers.
This Virgin Money account only allows two withdrawals per calendar year, although you can close the account and transfer the entire sumat any time.
If you want to switch Isa providers, don't simply move your balance via bank transfer.
First, check that your chosen new provider accepts transfers, as not all do. From there, fill in an Isa transfer form. Your new provider should then manage everything for you, including contacting your current provider.
Under , if you want to move money that you've paid into an Isa during the current tax year, you must transfer the whole balance. For Isas deposited into in previous tax years, you can choose how much you want to move.
Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.