Martin Lewis advises that cash ISAs are only beneficial for those paying tax on savings interest, often recommending higher-paying standard accounts instead. While he previously urged savers to use their £20,000 allowance, he has noted that upcoming 2027 changes will reduce the cash limit to £12,000 for under-65s, though existing ISA funds remain protected.
If you're not paying tax on your savings interest, cash ISAs have no benefit – so many should ditch them for higher-paying standard accounts. That's the message from MoneySavingExpert.com founder Martin Lewis in the third episode of the latest series of ITV's The Martin Lewis Money Show Live.
Plans by chancellor Rachel Reeves to reduce the amount that savers may put into cash ISAs will upset millions of people but not achieve what she wants, money expert Martin Lewis is warning.
Disadvantages: Interest rates may decrease, funds might be locked in fixed-rate ISAs, and not all accounts permit transfers, sometimes incurring exit fees.
Currently, it's possible to get a cash ISA savings rate that beats the current rate of inflation (3.5% at the time of writing). This means your savings has more purchasing power. This is one reason why it could be time to think about moving your money into a savings or investment account with high interest rates.
A Cash ISA may be attractive because you earn regular interest without exposing yourself to the risks of the stock market, as you would if you invested. However, as we've seen, inflation could hamper growth, and your savings may even be losing value.
The main difference is that a cash ISA is a tax-efficient way to save money. Interest on your savings is paid free from UK income tax and capital gains tax. While both could help your money grow, choosing the right one (or a combination of both) for your circumstances can help maximise your money's growth potential.
You can get around 7% interest on savings in the UK primarily through Regular Saver accounts, with top offers from Zopa (7.1% variable), First Direct (7% fixed), and the Co-operative Bank (7% variable), though these often require you to have their current account and limit monthly deposits, while Principality Building Society has offered rates near this (7.5%) on fixed-term savers, so check MoneySavingExpert and MoneyWeek for current deals.
There are a number of factors you should consider before selecting a cash ISA.
What were the Cash ISA changes announced in the Autumn Budget? The Budget confirmed that the Cash ISA allowance is set to be cut from April 2027. For under-65s, the Cash ISA allowance will reduce from £20,000 to £12,000. For 65s, and older, the Cash ISA allowance will remain at £20,000.
Is £100,000 savings good in the UK? Yes. £100,000 is five times the annual ISA tax-free savings allowance and approximately ten times the UK average in savings. But if your AER (Annual Equivalent Rate) is lower than the rate of inflation, your money will lose value every year.
The 70/20/10 rule for money is a simple budgeting guideline that splits your after-tax income into three categories: 70% for Needs (essentials like rent, groceries, bills), 20% for Savings & Investments (emergency funds, retirement), and 10% for Debt Repayment & Donations (extra debt payments or giving). It balances immediate living costs with long-term financial security, helping you cover necessities while building wealth and paying off liabilities.
New limits only apply to money deposited on that future fiscal year. Carl Griffiths The new rules don't apply to an ISA you already have. You can transfer it to an ISA paying more interest next April and subsequent years. If you are over 65 you will still have the £20000 allowance each year.
Nationwide's popular 8% savings account was a Flex Regular Saver launched in September 2023 for existing current account holders, offering a market-leading 8% AER for 12 months on deposits up to £200 monthly, with limited withdrawals allowed before the rate dropped; however, this specific 8% product is no longer available, with rates changing and maturing for many savers by early 2025, though Nationwide continues to offer other competitive savings products.
The UK government has announced significant changes to the tax treatment of cash held within stocks and shares Isas, targeting a loophole that could allow savers to bypass newly imposed caps on tax-free cash savings.
Options for investing a lump sum payment
If you want to invest $10,000 over 10 years, and you expect it will earn 5.00% in annual interest, your investment will have grown to become $16,288.95.
ISAs are a tax-efficient way to save and invest money, meaning you won't pay tax on any interest, gains, or returns earned within the account. Martin also explained that you only have to be 18 to open most ISAs in the UK but added the tax benefits ISAs bring would depend on how much you are paying tax.
Are Cash ISAs safe and secure? Cash you put into UK authorised banks or building societies – including within a Cash ISA – is protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection limit is £120,000 (or £240,000 for joint accounts) per authorised firm.
Cash ISAs are useful for:
But there are some downsides worth thinking about: Interest rates are often lower than inflation. Your money isn't compounding in the way investments can. Over time, you may lose out on real buying power.
Warren Buffett doesn't dislike dividends but believes retaining earnings for reinvestment, acquisitions, and buybacks at Berkshire Hathaway creates more long-term value than paying them out, allowing for greater compounding and growth, though he supports dividends in companies where profits can't be reinvested profitably, like See's Candies. His core principle is that if Berkshire can generate more than $1 of market value for every $1 kept, shareholders are better off with retained earnings, a strategy proven effective by Berkshire's outperformance.
The 7-3-2 rule is a financial strategy for wealth building, suggesting it takes 7 years to save your first major financial goal (like a crore), then accelerating to achieve the next goal in 3 years, and the third goal in just 2 years, leveraging compounding and disciplined, increased investments (like a 10% annual SIP hike). It highlights how returns compound faster over time, drastically reducing the time needed for subsequent wealth targets, emphasizing patience and consistent, growing contributions.