Savers can get better deal with Isa rule change
SAVERS will have greater freedom to spread their money around from April when new rules allow them to split their cash Isa allowance between multiple banks rather than sticking with a single provider.
Currently, savers can only use their £20,000 tax-free allowance to invest in one provider’s cash Isa each year, plus one stocks and shares Isa if they wish.
That is set to change from the new financial year on April 6, when savers can sign up to multiple Isas of the same type every year, provided they do not breach the overall £20,000 allowance.
MoneyComms.com personal finance expert Andrew Hagger said the rules will give savers freedom to shop around for a cheaper deal. “They will be able to switch to better-paying products in the middle of the tax year if their original Isa choice starts to lag behind the most competitive best buy rates.”
They can split their tax-free cash between different Isa types, say, variable or fixed rates, rather than going all in on one type. Hargreaves Lansdown is taking advantage of the rule change after launching what it claims is the UK’s first cash Isa platform. This will host multiple banks and savings products including easy access, limited access and fixedterm savings rate bonds.
The Active Savings Cash Isa platform already offers a number of products, including an instant access account from OakNorth Bank paying 4.63 per cent and one from Zopa Bank paying 4.61 per cent, and hopes to recruit many more.
Head of active savings Mark Hicks said: “This reduces complexity by allowing savers to have Isas with different providers all in one place.”
Cash Isas have fallen out of favour in recent years, as standard savings accounts pay slightly higher interest rates, said Anna Bowes, founder of rate tracking service Savings Champion. “The vast majority of savers have also been able to take the interest from their savings accounts free of tax under the personal savings allowance (PSA).”
The PSA allows basic rate taxpayers to earn £1,000 of interest each year before paying tax, falling to £500 for higher rate taxpayers.
However, it has remain frozen since it was launched in 2016. “Thanks to improved savings rates, more people are now breaching their PSA and paying tax on their savings interest. They can avoid this by moving at least some of their money into a cash Isa,” Bowes said.
The freedom to take multiple cash Isas and easily transfer out of poor performers should boost their appeal.
With the Isa deadline just two months away, Hagger is forecasting a rush of savings and investment platforms similar to Hargreaves Lansdown’s offering. “I expect most major platforms to be offering similar by April.”
He added: “Greater Isa flexibility is welcome but I’m sure most savers would have preferred to see a higher annual Isa allowance, to shield more of their savings from the taxman.”