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. That is set to change from the new financial year on April 6, under new rules announced by Chancellor Jeremy Hunt in November’s Autumn Statement.
These will let savers sign up to multiple Isas of the same type every year, provided they do not breach the overall £20,000 allowance.
Personal finance expert Andrew Hagger at MoneyComms.com said new flexible rules will give savers the freedom to shop around for a better rate. “They will be able to switch to better paying products in the middle of tax year if their original Isa choice starts to lag behind the most competitive best buy rates.”
The change will allow savers to divide their tax-free cash between different types of Isa, say, variable or fixed rates, rather than going all in on one type.
New “pick and mix” cash Isa rules are long overdue.
Today, savers are barred from taking a best buy instant access account with one bank or building society, and a fixed-rate bond with another.
From April, that will change and savers need to take full advantage.
Millions have money sitting in legacy cash Isas paying dismal rates of interest, because moving their money seems such a bother.
Cash Isa transfers are only supposed to take up to 15 days but the Financial Ombudsman says many take more than a month.
Now investment fund manager Hargreaves Lansdown is taking advantage of the rule change by launching the UK’s first cash Isa savings platform.
Savers already a choice of non-Isa savings platforms, including Raisin UK, Aviva Save, AJ Bell Cash Savings Hub, Flagstone and Hargreaves Lansdown Active Savings.
The Hargreaves Lansdown Active Savings Cash Isa platform will follow the same principle. It will host multiple savings products including easy access, limited access and fixed-term savings rate bonds, from a wide range of banks and building societies.
This will massively boost competition and savers will be the winners.
The platform already offers a number of savings products, including an instant access account from Oaknorth Bank paying 4.63 per cent and one from Zopa Bank paying 4.61 per cent. It plans to recruit more.
Hargreaves Lansdown head of active savings Mark Hicks said it will provide the “full suite” of cash Isa products, including fixed term, easy access and limited access, from multiple banks. “This will reduce complexity by allowing savers to have Isas with different providers all in one place.”
It means savers can “bucket” their cash Isas, he added. “They could put some on easy access account and lock away the rest in a market-leading rate.”
With the annual Isa deadline just over two months away, Hagger is forecasting a rush of new savings and investment platforms looking to replicate the Hargreaves Lansdown offering.
“I expect most major platforms to be offering something similar by April.”
They will all strike their own deals with savings providers, so compare offerings to see which one is best.
READ MORE: Savings provider increases interest to ‘excellent’ 5.1% on easy access account
Cash Isas have fallen out of favour in recent years, as standard savings accounts pay higher rates of interest, said Anna Bowes, founder of 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 remained frozen since launch in 2016. “Thanks to improved savings rates, more and 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.
A rash of new cash Isa platform launches in the run up to the April 6 rule change would help savers do just that. Bring it on.
