Savers have got just hours left to open a Cash ISA and deposit up to £20,000 tax-free – saving up to £450 of interest in the process.
This Sunday, April 6, will mark the start of the new tax year, meaning savers now have less than 48 hours to go to open and fill up a Cash ISA before the annual limits reset on accounts. ISAs are a type of tax-protected savings account which allows a holder to deposit up to £20,000 per year into them, without having to pay any tax on the interest generated within them. They reset each year, on April 6, meaning you can put another £20,000 into them from Sunday.
But if you fail to max out the deposit limit before then, you lose this year’s allowance forever – each £20,000 per year is only for that year, and when it’s gone it’s gone.
With possible changes coming to Cash ISA limits next year, money experts are urging savers to maximise this year’s limit now, before Sunday.
Rob Morgan, Chief Investment Analyst at Charles Stanley, said: “ISAs have many benefits for savers and investors – they’re tax-efficient, easily accessible, can be used for short and long-term goals, and can also be used as a bridge for retirement savings.
“They’re the Swiss army knife of financial planning and can be used for nearly everyone’s needs and priorities.
“Yet there are clearly many who don’t know about the ISA deadlines in place. This raises concerns over how many are taking true advantage of their ISA allowance to maximise their savings and build superior compound gains.
“With rumours having also floated around that the Chancellor could make changes to cash ISA limits, it’s even more important that consumers don’t let their savings sit idly and ignore this year’s deadline.”
ISAs are particularly useful for avoiding tax if you’re a high earner or you have a lot of savings.
Normally, everyone has a Personal Savings Allowance. This is £1,000 for someone on 20% tax, £500 for 40% tax (earning over £50,270) but £0 for someone earning £125,000 or more.
It means you can earn up to £1,000 of interest on savings before paying tax on it, depending on your income.
But if you deposit the money into a Cash ISA, your interest is totally protected from tax, no matter how much interest you earn, as long as you don’t deposit more than £20,000 in a financial year.
For someone earning £50,271, with £20,000 of savings at 5%, you would earn £1,000 interest. Normally, £500 of this would be above your Personal Allowance, meaning you get a tax bill of 40% of £500, or £200.
But in an ISA, you pay no tax, saving the full £200. For someone on 45% tax rate, that’s even more, a £225 saving.
