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Use both cash ISAs and high interest current accounts, savers urged

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
27/04/2016

Savers need to adopt a more “sophisticated strategy” in today’s environment rather than just chase the highest interest rate on the market, a savings expert has warned.

Susan Hannums, director at Savingschampion.co.uk, said savers should be more “canny” and get the most they can from the various products on offer from banks.

She suggests using both high interest paying current accounts and cash ISAs to get the maximum benefit available.

While interest rates on cash ISAs have fallen significantly from their 3.33% peak in 2012 to just 1.34% now, rates on some current accounts have increased. The Santander 123 Current Account, for example, has paid a static 3% AER on deposits of as much as £20,000 since October 2012, consistently beating the average cash ISA rate available on the market.

The new Personal Savings Allowance – which enables basic rate taxpayers to earn up to £1,000 of savings income tax free – has also contributed to the flight from cash ISAs.

However, Hannums says closing cash ISAs to chase higher interest current accounts means losing the tax protection ISAs offer. She also points out high interest current account rates are variable.

She said: “We are now recommending a strategy where rather than using one or the other type of account, you could use both to get the maximum benefit available. For example, at present you can put up to £15,240 into a cash ISA, rising to £20,000 from next April.

“So, we might suggest putting this money into a high interest current at the earliest opportunity, and then moving that money into an ISA towards the end of the tax year to protect it from future tax. Then repeat the process the following year.

“This way you are getting the best of both worlds, not having to miss out on extra interest or the protection a cash ISA can give.”

Hannums said this represents a “new way of thinking” for savers.

“Rather than putting everything into a cash ISA at the earliest opportunity, they need to be more canny to get the most they can from the various products om offer from the banks.”


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