Recently, Sarah* wrote to Express Money and detailed that she held money in a normal savings account and an ISA but that she “just didn’t know which way to jump”. Sarah detailed that, unfortunately, her income had been hit by coronavirus as she’s self-employed and she wasn’t sure if she should keep her money with her existing bank, move it to another firm or split it among various accounts.
In response to these queries, Rachel Springall, a Finance Expert at moneyfacts.co.uk, broke down what the best options may be for Sarah and other savers in similar predicaments: “Savers can usually get better returns outside of an ISA wrapper, particularly if they fix, however consumers may wish to utilise their allowance as the personal savings allowance (PSA) is not guaranteed to stay around forever.
“Interest rates across all types of savings accounts have been on the downward trend, so there may be savers sitting on a poor rate right now – this will be devastating news for savers.
“This then stresses the importance for savers to be vigilant and to switch elsewhere if they are no longer getting the best possible return on their hard-earned cash.
“Savers looking away from ISAs will miss out on the long-term benefits that holding one provides, particularly as there is no telling how long the PSA will last.
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“If the PSA was ever abolished to bring in more tax from savers, then ISA’s will shine brightly again in terms of their tax-free wrapper.
“It’s easy to switch ISA’s and most of the best deals allow transfers in from other cash ISAs, so this should be taken fully advantage of to get the top rates.
“If savers have locked into a fixed ISA too early, they would be wise to check out the terms for transferring away before they arrange a move elsewhere.”
Rachel concluded by providing the following advice:
- Savers must be careful when moving from one ISA to another that they do not cash in the account to reinvest as the money will lose its tax-free status.
- ISA savers would be wise to make a diary note for the start March every year to check out the latest deals to enter the market.
- Take full advantage of the PSA, but do consider ISAs for their long-term tax-free benefits.
- It would be wise for savers to compare challenger bank offers to high street banks – so long as they are FSCS protected there is little reason to overlook them.
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Rachel also highlighted the following accounts were the “best buys” for ISAs and savings accounts (as of March 26):
- Cash ISA fixed one year: Monmouthshire BS – 0.49 percent AER
- Cash ISA fixed two year: State Bank of india – 0.65 percent AER
- Cash ISA fixed three year and over: United Trust Bank – 1.1 percent AER
- Cash ISA variable: Marsden BS – 0.55 percent AER
- Regular savings account: NatWest – 3.04 percent AER
- Regular savings account fixed one year: QJB UK – 0.7 percent AER
- Regular savings account fixed two year: QJB UK – 0.8 percent AER
- Regular savings account fixed three year: Bank of London and the Middle East – one percent AER
- Regular savings account fixed four year and over: Shawbrook Bank – 1.35 percent AER
Getting on top of ones savings plan is especially important at the moment, with the DWPs recent family resources survey highlighting how some families are struggling.
The Government summarized the key findings from the survey which was conducted in the 2019 to 2020 financial year and followed interviews of 19,000 households.
The DWP detailed: “Overall, half of all families had savings of more than £1,500, with a fifth having savings of more than £20,000. The level of saving increased with age, and nearly half of pensioner couples had savings exceeding £20,000.
“However, it is also the case that half of all families had either no savings, or less than £1,500 in savings.
“Lone parent families were substantially more likely to have savings at this lower level than other types of family; 84 percent of those who were single parents, reported savings of either zero or less than £1,500.
“It was also the case that singles living alone (of working age) had lower levels of saving than average, with 70 percent of men and 69 percent of women having either zero or less than £1,500 saved.”
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, commented on these figures and urged savers to take action: “These figures show just how exposed we were when the pandemic hit: one in ten people had no savings at all to fall back on, and half had £1,500 or less. This is far less than we need in our emergency savings accounts.
“Now, a year into the pandemic, there are an awful lot of people who have seen their threadbare savings eroded even further: one in three people have had to eat into their savings. “However, one in four have had a chance to rebuild their cash balances. If your income has been resilient so far, it’s well worth taking stock, making sure you have three to six months’ worth of essential expenses in a competitive easy access account, and that you consider tying up any additional savings for the periods that suit your circumstances best, in order to lock in a better rate.”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.
*Name has been changed.