UK households are being urged to move their money or risk being £1,861 worse off, as savers face a major change to the Cash ISA allowance next year. The current £20,000 limit is set to drop to £12,000 for under-65s from April 2027.
Big Differences in Interest Rates
According to analysis by Defaqto, placing the full £20,000 allowance into a top-paying five-year fixed Cash ISA could earn savers nearly £1,900 more in interest compared to the lowest-paying deals. The best rate currently available is from Nationwide at 4.60%, while the poorest stands at 3.00%. Over five years, this difference amounts to £1,861.03.
Expert Advice
Katie Brain, banking expert at Defaqto, said: "Cash ISAs remain an important way for savers to protect their interest from tax, particularly while savings rates remain relatively high. What's striking is the size of the gap between the best and worst paying accounts, which means failing to shop around could cost savers thousands over the long term."
She added: "We're also seeing more flexibility in the market, with savers able to split their ISA allowance across different products to balance access and returns. But with the Cash ISA allowance due to reduce from April 2027, this year is particularly important for anyone looking to maximise the amount they can hold tax-free."
How to Make the Most of Your ISA
- Maximise your allowance early. The sooner you deposit funds, the longer your money can accumulate tax-free.
- Consider diversifying your ISA. Use a combination of easy-access, fixed, and tracker ISAs to strike a balance between flexibility and returns.
- Check your Personal Savings Allowance. If you're likely to exceed it, a Cash ISA becomes even more valuable.
- Understand access restrictions. Fixed ISAs often limit withdrawals, while easy-access accounts may have lower rates.
Before committing, think carefully about your needs, including how likely you are to need access to your money, whether you might exceed your Personal Savings Allowance, and how long you can afford to lock funds away.
