Don’t abandon cash Isas

People are abandoning cash Isas in their droves since the introduction of the personal savings allowance. But abandoning cash Isas completely is a mistake that could leave you facing a tax bill in the future.

People are abandoning cash individual saving accounts (Isas) in their droves since the introduction of the personal savings allowance. A total of £1.7bn was withdrawn from cash Isas in June, the largest amount since records began, according to the latest figures from industry body UK Finance. Meanwhile, £6.5bn was paid into standard savings accounts over the same period. However, abandoning cash Isas completely is a mistake that could leave you facing a tax bill in the future.

The personal savings allowance lets basic-rate taxpayers earn up to £1,000 in interest per year before paying tax on their savings income. This allowance then tapers off as you earn more. Higher-rate taxpayers only get a £500 allowance, and additional-rate taxpayers get no allowance at all. That means if you get a pay rise that takes you into a different tax bracket, you could find yourself suddenly liable to pay tax on your savings. By contrast, money held in a cash Isa can grow tax-free regardless of how much you earn.

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.