Martin Lewis’ cash ISA advice as he urges savers not to do 1 thing | Personal Finance | Finance
Money expert Martin Lewis has issued a fresh warning to savers about cash ISAs, urging them not to overthink their savings strategy and to act swiftly if their accounts are underperforming.
Speaking on This Morning, the Money Saving Expert founder addressed widespread confusion around cash ISAs following the start of the new tax year. He reminded viewers that a cash ISA is simply a savings account where the interest earned is tax-free, but that doesn’t mean all cash ISAs are created equal. He said: “Unless you’re in an absolutely pants cash ISA with a very low interest rate, which if you’ve had it for ten years, you probably are. What you need to do is get out of that cash ISA, and I don’t mean take your money out entirely. A cash ISA is just a savings account you don’t pay tax on. Don’t overcomplicate it.”
Lewis warned many people are stuck in poor-performing ISAs opened years ago, unaware they could be getting significantly better returns elsewhere.
Currently, top-paying variable cash ISAs include Tembo at 4.8% and the Post Office at 4.4%, a major step up from legacy accounts that may be offering as little as 0.5% or lower.
To switch without losing the ISA’s tax-free status, savers should use the official ISA transfer process.
The money expert stressed: “You go to the new provider, and on the application form it will ask, ‘Do you want to transfer any money across?’ That’s how you keep the ISA status. Do not just withdraw the money yourself.”
Lewis also pointed to a major rule change introduced in the 2024 Spring Budget. For the first time, savers can now pay into multiple ISAs of the same type within a single tax year, as long as they don’t exceed the annual £20,000 contribution limit.
This has opened up more options for strategic saving, particularly for those who want to take advantage of multiple high-interest accounts. “You can now split your allowance across more than one cash ISA in the same tax year, which wasn’t allowed before,” he explained.
While cash ISAs can be a smart move for higher earners or those with large savings pots, Lewis reminded viewers that for many people, a standard savings account could offer better returns, especially if you’re within your personal savings allowance.
For a basic-rate taxpayer, the first £1,000 of savings interest earned each tax year is tax-free. Higher-rate taxpayers have a £500 allowance, while additional rate taxpayers (45%) get no allowance at all. There’s also a lesser-known “starting savings rate” that allows low-income earners (earning under £12,570) to make up to £5,000 in interest tax-free, depending on total income.
“The interest is what you get taxed on, not the amount you put in,” Lewis clarified. “And a lot of people are under that threshold, so they don’t even need a cash ISA to avoid tax. Just go for the best interest rate.
“Get the best rate, know your tax-free limits, and keep it simple.”
