Is the £20,000 cash ISA going to be killed? What savers should be doing NOW

0:00BBC Sounds. Music, radio, podcasts. Hello and welcome to the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is a pod-only ISA special I'm doing all on my tod, taking you through some urgent decisions about ISAs for those with savings and answering a host of your questions. In this pod, I'll cover... Is the£20 ,000 cash ISA allowance about to be cut? And if so, what should you do? The basics of how cash ISAs work. What should you do with old ISAs and do previous year's ISAs affect this year's allowance? Then on to cash ISAs versus shares ISAs. Which one is right for you?

0:42And then a host of miscellany from ISAs to 18-year-olds to monthly interest ISAs and how ISAs interact with the personal savings allowance. Yes, I say, I say, I say, it's a lot of ISAs. Yes, basically everything you've ever wanted to know about ISAs but were afraid to ask, except you weren't afraid you did ask and I'll try and answer. Let's get on with this. Play the theme tune.

1:19Okay so let's get started. Ironically as I walked into the building on the sixth floor of Broadcasting house in central London. There's a little sign that says ISA, which I think probably stands for internal security area. But it seems fitting for me today. I've always walked past it. Never has it been more relevant. I want to go through all of your questions. I'm going to start with Bob on Twitter, who says, should I top up at the beginning or the end of the tax year? And that is, of course, because we have just had a new tax year start on the 6th of April. So everybody has a brand new £20 ,000 ISA allowance to shelter your savings or your investments from tax.

1:58So while I may have talked about this in the middle of March, it might seem like we're doing it again quite frequently, the reason is you have a totally new allowance. Whether you used last year's or not, that is now gone. Although if you put money in an ISA before, it'll still be in an ISA because you used last year's and it stays tax-free year after year. But you now have brand new money. Now, there are two reasons why I would suggest it is worth looking at putting your money in sooner. The first one happens every year and that is this is ISA season. In fact, we're coming towards the end of ISA season.

2:29It tends to last around March and April. And ISA season, because the tax year is ending and then the tax year is starting, is when ISA providers tend to put out better promotional deals than they normally do. So rates are relatively higher. I say relative because it depends on the underlying interest rates, but relatively higher than they normally are with cash ISAs and you get more promotions with stocks and shares ISAs. So you may as well take advantage of those while you can. Of course, I can't guarantee that things won't improve and therefore you might have been better to wait. But the general trend is do it now.

3:02There is another big specific reason for doing it sooner this year. And that's because the Chancellor, Rachel Rees, have been evaluating cutting the cash ISA allowance. Rumours say to as low as£4 ,000. Now, if that does happen, and it is an if, it's thought it would be likely to be announced in the autumn budget, though with the uncertainty available right now, anything could or couldn't happen at any time. The concept behind cutting the cash ISA allowance, and it's only the cash ISA allowance, not the shares ISA allowance, is that it would encourage people to put their money in shares ISAs instead.

3:44Personally, I'm sceptical if that would work. I think many people would just keep saving but pay more tax. You know, the decision to invest and save, it is comparing apples with steak. They are not the same thing. Everything I'm saying, it's worth noting, is pure supposition. I doubt any firm decision has been made yet. Yet it absolutely has been discussed. I am 100 % positive it's been discussed. I have had meetings with the Chancellor. They are private meetings. But let me just say, I know that this is something that has been discussed. I was also asked a question about it when I gave evidence on lifetime ISAs about the potential cut in the cash ISA to the House of Commons Treasury Committee.

4:22So, yes, this is definitely a suggestion that is being considered. If it happened as rumoured, it's important to state it wouldn't impact money already in cash ISAs. it would just cut what you can put in a cash ISA in future. Now, whether if it was announced in the autumn budget, it would start immediately, you know, the day after the announcement, or it would start in the January, which we've seen with previous ISA changes many years ago, or it would start the following tax during the April. We don't know. Nobody knows. I think it's probably fair to say Rachel Reeves doesn't know at this point.

4:59Yet, what all of this means is if there is a potential for the cash ISA£20 ,000 allowance to be cut in autumn, the sooner you put your money in, the safer it would seem. Lots of ifs and buts there, but sooner is likely safer.

5:21Now, before I get on to answering the huge number of questions that you've sent me in, I just want to do a beginner's guide to ISAs. Your money is often nicer in an ISA. Each tax year, every UK adult, and that's somebody aged 18 plus, currently gets a£20 ,000 ISA allowance to put away money tax-free via savings, and that would be a cash ISA, or an investments, that would be a shares ISA. If you don't use the year's ISA allowance, you lose it when the tax year ends. In other words, it can't be carried over, but you've just got this brand new allowance, this 20, 25, 26 tax year allowance. And importantly, once the money is in an ISA, it stays tax-free year after year.

6:08So let's just imagine this. Imagine you put£20 ,000 in two tax years ago, and you put£20 ,000 in a couple of weeks ago, just before the end of the last tax year. And you could now put in another£20 ,000 if you were lucky enough to have this much money. you would have£60 ,000 plus the interest in cash ISAs protected from tax. Now, just in case you're a very beginner to ISAs and how this works, I would say that understanding ISAs is a piece of cake, and you'll understand in a moment why I use that particular phrase. I've been using this as my go-to analogy since 2001. So just get over it. Get over it.

6:50Okay, sorry. Let me do the analogy. So I want you to picture a cake, let's say a chocolate cake, because chocolate begins with the C, so does cash. So that's your savings, your cash ISA. Though equally it could be a strawberry cake for your shares ISA. Normally it's just sitting there and the interest is hopefully accruing. But the problem is the tax collector can come along and take a bite out of it. And the bite would be from your interest because it is the interest that's taxed. Saving themselves aren't taxed, it's the interest you earn on savings it is. Now think of an ISA wrapper like a protective piece of cling film you can wrap around the cake You get£20 ,000 of it each tax year Once your cash is inside, nothing has changed The cash in the savings is still the same A cash ISA is just a savings account The only difference now is the tax collector cannot eat any of it And once it's in that ISA wrapper, the tax collector can't eat any of it this year, next year, the year after, the year after that, until you take the money out.

7:53Now, some people think when I say until you take the money out, that means they'll be taxed when they take the money out. I don't mean that. I mean, if you take the money out of a cash ISA, there's no tax to pay in doing that. But if your money is then in normal savings and continues to earn interest in normal savings, it becomes taxable again. So as long as you keep it in the cash ISA, you don't pay any tax on it. And that is the cash ISA basics. Now let's do your questions. So my next chapter that I want to go through is short-term bonus rates that many people have been asking about. We'll start with Neil, who asked on Facebook.

8:25He said, On your most recent TV show, you refer to the three best interest-paying cash ices as all having rates boosted for the first three months. Presuming these all last for nine months, should I open one of them to then transfer to the second one, then transfer to the third to get the three-month bonus rate from them all, or is that not allowed? is there a better way of maximising the highest rates? Wow, okay. Actually, a really interesting suggestion, Neil. Effectively becoming a cash ISA serial switcher or more technically a serial transferer as you'd have to transfer the money from one to the next to the next.

9:00I don't think it'll work. And I don't think it'll work for the simple reason that these bonus rates are only available in the short term and much of it is for ISA season. So I simply don't think that if you get one of them now in three months' time, you can guarantee the next ones are available. And in fact, I think we might see them ending. And the reason I think we might see them ending is because I've started to get quite negative on them. And in my other work and my web work, let's just say, because I can't talk about it in detail, I've started to reorder my Best Buy tables so that these bonus rates, which have been gemming the Best Buy table, so they have an underlying rate of 3%, but then they add 2.5 % on top of it.

9:42So the headline rate is 5.5%. But You only get that for three months and then bang, the rates drop down. So you're only earning 3 % for the rest of the year. I just don't think they're as good as a stable rate that's higher. So what I've started to do, for example, there's one right now. Moneybox pays 4.2 % variable plus a three-month newbie bonus of 1.51%. So its headline rate in many Best Buy tables is 5.71%. But if you average that over the year, which is how I'm now comparing them, I call it the effective one-year rate, it's 4.6 % variable. And there are other accounts that are better. More so, there's a plum account.

10:18Its underlying rate is 3.54%. But with the newbie bonus, it goes up to 5.68%. But if you average that over the year, it's only 4.1 % variable. And because I think some of these, because a lot of cash iso traffic comes through my site, I think some of these have been done to be top of our best buys. As I've changed the way that we're doing best buys, so I put those last, and I can't unless the effective rate over one year is strong. Actually, this week already, two of the big providers that were doing it have now shifted into more longer term systems. So I don't think that would work. I do think that's quite, it's an interesting question.

10:56I must do Best Buys later, note to myself, and I will come up with the Best Buys later. Let's do Alice on Twitter. Why are so many providers dropping their ISA rates after three months, far more than any other year? Because this was a new trick to jemmy the Best Buy tables and when it worked, they were doing it, and now I think it's not going to work for them anymore. They'll probably stop doing it. Jane on Facebook, when I look at best deals for cash ISAs, I haven't heard of some of the providers. How do I know these are kosher? It's a very interesting question, and it's one I get a lot. Now, the first thing to say is any proper cash ISA will have the full UK financial services compensation scheme protection.

11:38That means if you have up to£85 ,000 per person in that financial institution, and it's worth noting in that financial institution, so if you had a cash iso with it and savings with it, they would all, the combined limit is£85 ,000, then in the unlikely event one of them were to go bust, your money would be protected. Now, there are some ifs and buts when it comes to these newbie bonus rates, that some of the newbie bonus rates are seen as promotional marketing and put in a separate account. So they're not protected, although your main capital and your main interest is protected. But that's on the edge.

12:12So if you haven't heard of them, as long as it is properly a cash ISA, and there are some people who sort of offer ISAs with cash elements, but they're not cash ISAs, that you have to be slightly protection of the protection about that. For example, you put money in an investment ISA and it has a cash holding account. But as long as it's a genuine cash ISA, then you are protected. But what I started doing a couple of years ago, and I will do it when I do my best buys, and if Tom, who's producing today, is actually the big boss producing me today, Tom will remind me, I must do best buys later, is I will also give you some of the big names, because I know people like security with their savings of who are the big names who are offering decent rates.

12:50So I'll run through those as well.

12:55Next chapter, big one. What should I do with old ISAs? Do previous year's ISAs affect this year's allowance? And I've got a host of questions from you on that. Let's start with Keith on Facebook. I've just taken out a one-year fixed-term ISA. I did this on the 4th of April 2025 and maxed out the allowance. Can I now take another ISA? If so, does it have to be with the same provider? Absolutely, you can take another ISA. Because we're in a new ISA year, you've got a brand new 20 ,000 allowance. If you put 20 grand in on the 5th of April, technically you're allowed to put another 20 grand in on the 6th of April because the 5th of April was so last year and the 6th of April is this new tax year.

13:36So yes, you can do it and no, it does not have to be with the same provider. You can do that. You can also equally set up a totally new cash ISA with a new provider. You can equally set up a totally new cash ISA with a new provider and transfer the money from the old provider into the new provider as well. John on Twitter, what should I do with previous ISAs that I have? Well assuming that they're easy access, I think the issue is that you say previous ISAs. And the reason I say that is the more ISAs you have from previous years, first of all, good rates tend to only last one or two years, and sometimes even less than that.

14:14So if you've got an ISA, a cash ISA you set up three or four years ago, the rate is probably pants. That's the first lesson. The second thing is you've got lots of different cash ISAs. Administratively, it's quite difficult to make sure that they're all paying decent rates and you have to do a lot. So what I would tend to do is consolidate them into one ISA. I use the phrase consolidate. That's not a technical term in this case. What does that mean? It means you open up a new ISA. Whether or not you're putting money into it is irrelevant. New money into it. You can do this even if you've only got money in old cash ISAs.

14:47You do a transfer form which will be on the part of the new ISA. It'll say you can do transfers. You fill in all your old ISAs and you move them all to a new ISA that is A, hopefully paying a good rate and B, that means administratively you now have all your ISAs in one place or all your old ISAs in one place that you're getting a decent rate on. So once that rate goes pants, because you should always monitor because any variable account, the rate can plummet, then you can just transfer it again all in one big lump. The only thing to watch is if you've got it enough and you have over£85 ,000 worth, then you might want to spread it across more than one ISA because you only get that financial services compensation scheme protection up to that level.

15:29Miss A on Twitter, can you keep transferring matured ISAs, say balance is now£25 ,000, to a new ISA and add new money to it up to£20 ,000? Yes. Mark on Twitter, shortest answer I've ever given, Mark on Twitter. My confusion starts on year two when you have the original£20 ,000 from the previous year and you add another£20 ,000 in the new tax year. If you transfer to another provider, can't you transfer the entire£40 ,000 or does the£20 ,000 per year limit apply? So let's go very plain here. As I always say, a cash ISA is simply a savings account you don't pay tax on. I'm only saying that because I realised I hadn't said it earlier.

16:14You get£20 ,000 per year. The limit is on the money you put in. So you can put in up to£20 ,000 of new money in a tax year. Everything else does not use up your limit and is not governed by the tax year rules. So absolutely yes, you can transfer the entire£40 ,000. There's no limit on transfers. The£20 ,000 rule doesn't apply. Once money is in an ISA, you've used up that year's allowance. It may be five years ago's allowance that you've used up. Once it's in an ISA, it stays tax-free year after year, and it can be moved and transferred. And as long as you're not adding money to it, you're not using up your allowance.

16:53You can add money up to it, into it, but only up to the£20 ,000. Fran on Twitter. I've ended up with a number of small ISAs that mature at different times that I've been rolling over each year. What I'd love to do, ideally, is combine them but can't work out how to do this. So reading between the lines, if they mature at different times, they are fixed-rate cash ISAs. So you've locked in a guaranteed rate for a set time and then they're going to mature. Here's what I'd suggest you do, and this is a bit of a compromise in doing this, to be honest, because what I would do is, for a year or so, I would move them all into easy access cash ISAs.

17:34So I'd pick a good easy access cash ISAs, and then when each one matures, I would transfer it into that easy access cash ISA. So that after a year or so, once they've all matured, you have them all in one place in an easy access cash ISA with the best possible rate. Once you're done, or whenever you feel ready, at that point, you can then transfer that easy access cash ISA into a fixed rate cash ISA. So administratively, that's by far the best solution. Then you've got them all in one place and it's much easier to manage. But of course, that means for the time they're in the easy access cash ISA, you won't have the guaranteed rate that you get from a fix.

18:13Okay, it's time for me to do the best buys for you. Just a quick warning at the start though. We're in ISA season. Rates aren't changing by the day, they're changing by the hour. So I'm going give you the best rates available at the time of recording, but some of these may well have changed by the time you listen. I can't give you where I would go to go and find the best rates if I was looking them up, for instance, but I'm sure you can work out there are some good sources of trusted information available online where you can go and look them up for yourself. So let's start first with the top easy access cash ISAs.

18:46All of those I'm about to mention, because they're easy access. That means the rate is variable. It can change. So if you get one now, it doesn't mean that rate will be the same in four or five months time. You need to keep your eye on it. But with all of them, these are cash ices where you can put your money in and you can take it out whenever you like. So all of those I'm going to mention have unlimited withdrawals because sometimes they say you can only do three or four penalty three withdrawals a year. Let's get into the best buys. So the very top rate is Trading212 at 5.04 % with a minimum£1.

19:22Then you've got Moneybox at 5.03%, minimum£500. Tembo at 4.8%, which is app only, minimum£10.

19:36Now all of the accounts I'm mentioning do allow you to transfer old ISA money in, although Tembo currently has a delay on transfers because it's been so busy. Now for the top bigger named easy access cash isis.

19:57Leeds Building Society is 4.41 % variable with a minimum£1 ,000. Marcus, which is owned by Goldman Sachs, app only, is 4.3 % variable with a minimum£1. and the post office, which is probably the biggest of the big names that I'm going to mention that has a decent rate, is 4.05 % with a minimum£100.

20:25Now, a few of the accounts I've mentioned do have bonuses that last a year of half a percent or one percent. I haven't pulled those out for you because I don't think it's that relevant because the rate is variable anyway. But I do want to talk to you about the post office is one year bonus, because it's one year bonus is 2.8%, meaning of its 4.05 % interest rate, 2.8 % of it is bonus, and 1.25 % of it is the underlying variable rate. Now, you can look at this two ways. You can say, well, that's bad, because in a year, the rate is absolutely going to plummet, and I will need to ditch and transfer because it's going to be a pants rate then almost certainly.

21:05But I tend to look at it when you've got such a big bonus as a year-long minimum rate guarantee. We don't know what's going to happen to UK interest rates, although the prediction is they're likely to drop this year. But we do know with this account, you're going to earn at least 2.8 % for the year because that is the bonus, with the exception that if we went into the extreme situation of negative interest rates. So I would tend to see it as a 2.8 % minimum bonus and actually paying 4.05 % with the variable element on top, which isn't a bad deal.

21:41Now let me move on to top fixed rate cash ISAs. Here, the rate is locked in. They cannot drop the interest rate on you.

21:58So, for one year, you've got UBL UK at 4.31 % minimum£2 ,000, so at 4.3 % minimum£1, and the big name here is Santander at 4.25 % minimum£500. For a two-year fix, Progressive Building Society, 4.3 % minimum£500, UBL UK, 4.26 % minimum£2 ,000, and the bigger name here is Santander, 4.1 % minimum£500. quid. Now, what's interesting about fixed rate cash ISAs, unlike fixed rate normal savings, is the cash ISA regulations mean they cannot lock your money away. So normally when I talk about fixed rate savings, I say you lock your money away in return for a guaranteed rate. With fixed rate cash ISAs, they have to allow you access to your money, but they can charge you an interest rate penalty normally of 90 or 180 days.

22:49So you lose up to half a year's interest. So you really don't want to get these if you think there's a realistic and obvious and common chance of you having to withdraw your money. But the advantage of them is if you think there's a very slight chance you need to access your money, then a fixed rate cash iso will always allow you to do that if you take an interest rate hit.

23:14And those are me cash iso best buys.