Since the successive cuts to this historically low level in March 2020, savings account providers have gone on to slash interest rates on products. The Bank Rate continues to be held at this level for now, meaning many are wanting to ensure they are accessing the market-leading deals which are available.
ISA stands for Individual Savings Allowance, and they are a way of saving tax-free – beyond the Personal Savings Allowance.
In the 2020 to 2021 tax year, the maximum amount a person can pay into ISAs is £20,000.
There are four types of ISA, and this includes Lifetime ISAs.
It’s only possible to put money into one kind of each ISA each tax year.
Lifetime ISA holders should be aware of another annual allowance.
There is a limit of £4,000 each year which can be paid in each tax year.
Savers with this account can get a 25 percent government bonus on savings paid into the account – up to a maximum of £1,000 bonus per tax year.
It comes as industry data shows ISA category growth is 36 times slower than the non-interest bearing market.
The portion of the market that earns no interest at all stands at £22.5billion, Bank of England data shows, and has increased by 25 percent in 2020, while the ISA market has increased by a fraction of that figure at 0.7 percent.
There has been a considerable slump year-on-year in terms of the ISA category’s growth.
It grew by 4.9 percent in 2019, which also marks a seven-fold decrease between 2019 and 2020.
Derek Sprawling, savings director at Paragon Bank, said: “Even while market rates fluctuate, ISA allowances are designed to contribute to building tax-free savings over a saver’s lifetime, and the yearly allowance is a ‘use it or lose it’ scenario.
“While your savings might be earning a lower rate than usual in a cash ISA at the moment due to market conditions, the savings environment will eventually recover.
“When it does, those savings will remain tax-free and they can be consolidated into another product, or transferred to a stocks and shares ISA.
“By not using an ISA allowance because of the current market conditions, savers are missing out on the opportunity to build on their tax-free savings.”
Mr Sprawling added: “We understand that market rates are currently challenging, and with ISA rates often lower than non-ISA products, it’s tempting to save the money away from cash ISAs.
“For this reason, Paragon strives to match rates on easy access ISAs to those offered on non-ISA easy access products, so savers can reap the benefit of tax-free savings even in the current market, while rates are lower than usual.”