Multiple City Investment firms are lobbying for Chancellor Rachel Reeves to ‘scale back’ incentives like cash breaks for Cash ISAs in an apparent effort to boost UK financial services and the economy by encouraging savers to ‘invest’ instead of ‘save’.

Companies including Insurance group Phoenix and the London Stock Exchange Group have urged the Chancellor to consider that the £386bn held in Cash ISAs (according to the Bank of England) could deliver higher returns for savers if invested in stocks and shares, while also boosting the declining equities market.

Our recent article on the Lifetime ISA under threat covered the discussion around scrapping the popular Lifetime ISA, something that is also currently being considered by the Government. With the Cash ISA now under threat too, it’s clear that savers may soon be facing turbulent times.

Unsurprisingly, consumers and personal finance experts have pushed back against the proposals. For many savers, these basic and straightforward products form an invaluable part of their personal finances, owing to their lack of volatility and risk compared with investments, including the ability to withdraw money at short notice.

According to 2021/22 data from HM Revenue & Customs (HMRC), roughly 14 million of the UK’s 22 million ISA holders only use Cash ISAs, meaning that the potential changes will significantly impact millions of people who are simply trying to save responsibly.

What is an ISA?

An ISA, or ‘Individual Savings Account’, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.

A Cash ISA is a tax-free savings account that allows people to save cash without incurring income tax on interest. They have become more popular over the past two years due to rising interest rates increasing the competitiveness of savings products.

You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your Cash ISA increases, you get to keep all of it tax-free.

While there is a £20,000 allowance in place for how much you can put in a year, there is not a cap on how much you can accumulate in an ISA over your lifetime.

When choosing a style of investment to suit your needs, you may want to consider how long you plan to invest for and how much you would like your money to grow. It is also important to understand what movement in value you may or may not be happy with because of investment ‘risk’ and any potential losses that may happen if you have to withdraw or ‘sell’ before you are ready. That is why soliciting professional advice can be crucial for understanding how to take those first steps towards a secure financial future.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to see how we can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax and cash flow planning.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

Question: I’ve just filed my self-assessment tax return, and once again I’m paying tax on the interest from my savings. I already max out my ISA allowance each year, but I’m tired of handing over part of my earnings to HMRC. What else can I do to make my savings more tax-efficient? 

Whilst it’s encouraging to see interest rates staying higher than expected, allowing savers to earn more, it does come with a downside: many of us are now paying more tax on our savings.  

The problem is that the tax allowances for savers haven’t changed in years. They simply don’t reflect the fact that interest rates have climbed significantly from the rock-bottom levels we saw for over a decade.  

Take the Personal Savings Allowance (PSA), for example. Introduced in 2016, it allows basic rate taxpayers to earn up to £1,000 in interest on non-ISA savings before paying tax, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not have a PSA. But with rates rising, these thresholds are being breached with much smaller savings pots.

In December 2021, before rates started to increase, the best easy access account was paying 0.75% AER, meaning basic rate taxpayers needed over £133,000 in savings to exceed the PSA. Fast forward to today, and with top easy-access rates at around 4.75%, you’d breach the allowance with just £21,053.  

This is one reason that cash ISAs have become so popular once again. They allow savers to protect their interest from the taxman. However, the annual ISA allowance—currently £20,000—hasn’t increased since 2017.

Another tax-free option for savers is NS&I Premium Bonds, although it’s a different type of savings account. Rather than paying a rate of interest to Premium Bond holders, the interest rate is applied to the amount held in the prize fund, and this funds the monthly prize draw that pays out prizes of between £25 and £1m each month.  

The maximum you can hold in Premium Bonds is £50,000 per person and each £1 purchases one Premium Bond and all the bonds you own are placed into a random monthly prize draw. So, you might win something, or you might win nothing at all! The opportunity to potentially win a bigger prize – and tax-free, means that Premium Bonds have remained very popular even though the interest rate applied to the prize fund, and therefore the amount of cash available for prize money has fallen recently.  

One other allowance that is available for those with a lower income is the starting rate for savings. If you earn less than £17,570 each year in total either from employment, a pension income or rental income you can earn up to £5,000 in savings interest before paying any tax on it.  

It can be quite complex to calculate though and if you earn more than the Personal Allowance - which is currently £12,570 - but less than £17,570, the £5,000 allowance will be reduced by £1 for every £1 you earn over the Personal Allowance.  

For example: 

If your income is less than £12,570 then you have the whole £5,000 starting rate for savers to make use of as well as any remaining Personal Allowance.  

Couples can also benefit by shifting savings between partners. If one earns less than the other, it might make sense to transfer savings to the lower earner to maximize tax-free allowances. However, it’s worth seeking advice from an accountant or financial adviser to ensure you’re making the best decision for your circumstances.

With rates where they are, making the most of tax-free options like ISAs, Premium Bonds, and the starting rate for Savings can help you keep more of your hard-earned interest out of HMRC’s hands. 

If you’ve found this article helpful and have a question relating to savings, investments and general financial planning that you would like to ask, please get in touch.  

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts and rates mentioned in this article are accurate and correct as at the time of writing.

According to studies by the Financial Conduct Authority, there is a staggering number of people in the UK who do not seek financial advice. This is known as ‘The Advice Gap’ and the number has been put at 39 million.

As an adviser with nearly 40 years in the business it does not necessarily surprise me that there is a great deal of reluctance. Much of the UK’s wealth resides with the Baby Boomers, many of whom can remember what financial advice used to be like in the 70s and 80s. The high levels of professionalism which exist in the industry today, were a thing of the future. Even as late as the mid 80s (when there was no regulation) one insurance company rep (I will desist from mentioning any names) cited that in his first job (in Swansea) one of his best producing ‘advisers’ was a butcher who also sold life insurance policies to his customers, presumably in conjunction with two pounds of mince!

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I have witnessed the complete transformation of this industry. The advisers of today are well educated and highly qualified people with, perhaps most importantly, a high degree of integrity. There is no resemblance to the ‘wild west’ of old but, of course, I have sympathy for any individuals (and there are many) who had a bad experience in the past.

But baby boomers with unhappy memories aside, there is still a great deal of misunderstanding about the value an adviser can add.

In 2022 the Financial Conduct Authority (FCA) conducted research and found that 60% of people with investable assets of £10,000 or more considered that they wouldn’t benefit from financial advice. Another survey by the Financial Services Compensation Scheme (FSCS) indicated that 23% of people felt they didn’t have sufficient wealth to warrant advice and 38% considered advice to be too costly and didn’t represent value for money.

What does value for money represent?

In stark terms this can be viewed as asking the simple question “would I have more money at the end of the day with or without and adviser?” and this is a fair question. Most ‘sceptics’ will simply look at portfolio returns only. Of course, performance returns are very important but in the context of holistic financial advice, it is only one factor.  

This point can be illustrated well by an experience I had with a client I had just acquired back in 2017, who was drawing down money from a pension and paying 40% tax for the privilege. The same client had considerable wealth held outside of the pension and by running cashflow projections, I was able to demonstrate that by directing the income away from the pension and taking it from pension investments, at the end of his life (assumed to be the life expectancy given his age) his estate would be over £300,000 better off. This was simply a tax observation and had nothing to do with the performance of underlying portfolios.

We would all be great investors if we had a crystal ball!

On the subject of portfolios there is also a tendency for would be clients to look at performance in the rear mirror and conclude that self-investing would result in a higher net return. We would all be great investors if we had a crystal ball! The most common trait of the amateur investor, particularly when markets are doing well, is to increase the risk of the portfolio and then, when a market crash comes, all of a sudden, those high performing investments are often the first to fall off a cliff.  

One of the responsibilities of a good adviser is not only to ensure that your money grows well but to ensure than when times are tough, you are sufficiently protected. This is particularly true for retired clients who are in the ‘decumulation’ stage, the point at which you start to draw on your retirement funds. They have worked hard all their lives to build up a pot for retirement and it must be structured in such a way that, if there is a market crash (and there will be one sooner or later), they can continue to draw an income without losing sleep. This can only be done by managing the overall risk and making sure there is sufficient ‘low risk’ investment in the short term to ride the market turmoils.

How to quantify the Value of Financial Advice

In 2019 the International Longevity Centre (ILC) conducted a survey to quantify the value of advice in monetary terms. Over the course of a 10-year period, on average, those who sought advice saw their wealth increase by a whopping £47,706, twenty-four times higher than the average initial fee for the advice.

It is not only the hard benefit of pounds and pence. A Royal London study examined the emotional benefits of having a trusted adviser on board. Peace of mind scored highly. Most people want to enjoy their lives without feeling anxious about their finances. 

A good financial adviser can often provide reassurance, particularly if a projection of finances (using cashflow tools based on cautious assumptions) indicates that life goals can be achieved.

Achieving one’s goals is like climbing a mountain. It takes preparation, equipment, skill and determination to get there, and I don’t know about you, but if I were taking on Everest, I’d rather do it with a good sherpa by my side!

Ultimately, it hinges on trust, and the industry has created a landscape populated by well-equipped advisers who are highly regulated, and duty bound to work in the clients’ best interests. According to the Langcat Report 91% of people considered their advice to be helpful and valuable.  

Some readers will be old enough to remember Red Adair. A colourful character, Red was the only person in the world capable of extinguishing raging fires on oil rigs (an alarmingly regular occurrence back in the 70s). He also charged accordingly and when challenged on his fees he replied “If you think it’s expensive hiring a professional, you should try hiring an amateur!”.

If you would like to learn more about how we can help, why not get in touch and speak to one of our qualified advisers for a free initial consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

Nine years after the popular Lifetime ISA (also known as LISA) was created, the Treasury Committee has now launched a review to determine whether it is still ‘fit for purpose’ among other considerations.

Some points being reviewed include whether the deposit limits should be increased, whether the withdrawal penalty should be removed, whether the Lifetime ISA is ‘value for money’ for the Government, and the overall efficacy of the product.

Introduced in the 2016 Budget by former Chancellor George Osborne, the idea behind the Lifetime ISA was to provide an alternative method of tax-free saving for retirement while simultaneously encouraging people under 40 to save for a property by offering incentives which could help people get on to the property ladder.

However, in the nine years since it launched, there have been next to no adjustments despite house prices and living costs going up. The maximum savers can spend on a house using the Lifetime ISA is still £450,000.

According to figures from HM Revenue & Customs (HMRC), more than 1.5 million people are currently using Lifetime ISAs to save for their first property, with 230,000 people having already benefitted from the ISA.

The deadline for information gathering is 4 February, after which the Treasury Committee will deliberate on the best way forward for the Lifetime ISA, and even whether it should continue at all.

What is an ISA?

An ISA, or Individual Savings Account, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.

You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your cash ISA increases, you get to keep all of it tax-free (source: gov.uk). 

The Lifetime ISA explained

You can only save up to £4,000 a year in a Lifetime ISA, and the Government guarantees that 25% of your investment will be matched. That means if you put the max amount of £4,000 in your Lifetime ISA each year, the Government will add £1,000.

The caveat is that the money accumulated in a Lifetime ISA can only be used to either buy your first home, or to be withdrawn after the age of 60, or in the exceptional case that you are terminally ill with less than 12 months to live. Withdrawal under any other circumstances incurs a 25% penalty to the entire pot. 

If you have £100,000 or more in pensions, savings and investments and would like to receive a free initial cash flow forecast, up to the value of £500, please arrange a chat here.  

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The Financial Conduct Authority (FCA) does not regulate tax and cash flow planning.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

2024 ended with inflation at slightly higher than the Government’s target of 2%, although a little lower than expected, the latest figures from the Office for National Statistics (ONS) show.

In the 12 months to December 2024, the headline inflation rate as measured by the Consumer Prices Index (CPI) was 2.5% - slightly lower than 2.6% in November – and below the forecast which was for the rate to remain unchanged.

Possibly more importantly though, core inflation fell to 3.2% from 3.5% in December, and services inflation fell too, from 5% in November to 4.4% in December. These latter inflation measures are reviewed closely by the Bank of England when they consider interest rate decisions. And what these figures mean is that a base rate cut could well be on the cards at the next Monetary Policy Committee (MPC) base rate meeting on 6th February 2025.

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Michael Saunders, a former member of the Bank of England's MPC, told the BBC, "if it stays like this, we will be "en route" to slightly more interest rate cuts"

The key drivers of the unexpected fall in inflation in December were the slowing price rises of restaurants and hotels. The ONS reported “The annual inflation rate for restaurants and hotels was 3.4% in December 2024. This is down from 4.0% in November and is the lowest annual rate since July 2021. On a monthly basis, prices fell by 0.1%, compared with a rise of 0.5% a year ago.”

However, Rob Wood, the Chief UK Economist at Pantheon Macroeconomics said that “Both will reverse in January, so the dovish news today [15/01/2025] is a temporary reprieve.” He added that “inflation is still heading above 3% in April.”

So, the Bank of England policy makers are likely to remain cautious and it’ll be interesting to see what the January inflation figures look like, which will be announced ahead of the next MPC meeting.

We‘ll have to wait and see, but the good news for savers is that while we do so, there are other economic forces at play, that are causing fixed term bond and ISA rates to increase!

It’s been widely reported that UK gilt yields have been soaring, and this is a concern as the Government has to offer higher interest rates to attract investors to new bonds.  

Governments generally borrow money by selling bonds (known as gilts in the UK) to big investors, such as pension funds. The higher yields increase the cost of borrowing, potentially straining public finances, especially if the government has a large debt.

But on the plus side for savers, rising gilt yields is linked to rising fixed term savings rates, and that is what we have seen recently, especially on the best rates for longer term bonds and ISAs. Increasing savings rates and slowing inflation is a great combination for savers and means that there are many accounts available that are paying an interest rate that is higher than the current level of inflation, even if you now pay tax on your savings interest.

Take advantage while you can

At the beginning of this year, the top 5-year bond was paying 4.50%, but at the time of writing, this has leapt to 4.78% - and even more interestingly, this rate is higher than the top 1-year bond, which is currently 4.77%.

It’s been quite some time since you could earn more when locking your cash up for longer – so it’s a good opportunity to get a top rate that should provide an inflation beating return over the next few years, even though interest rates are expected to continue to fall, although more slowly and to less of a degree than previously expected.

Rates on the top fixed term cash ISAs have increased too this year, but the longer term are still paying less than the short-term accounts. The average of the top five 1-year ISAs is now 4.53% up from 4.50% at the beginning of the month, although the best rate is only 0.01% higher at 4.54%, up from 4.53% on 2nd January.  The top 5-year ISA is now paying 4.21%, up from 4.18%. Regardless of how small, increases are welcome, nevertheless.

But things may already be settling down.

The yield on the 10-year gilt - the interest rate at which the government pays back a decade-long loan to investors – dropped to 4.72% on Wednesday, having risen to nearly 4.9% on Monday, its highest level for 17 years.

Meanwhile, by Wednesday, the 30-year gilt yield stood at 5.30%, below Monday's peak of 5.46%.*  

As a result, if you are thinking of locking up some of your cash, you might want to strike while the iron is hot, as we don’t know when things may reverse.

Take a look at our Best Buy tables to find the right account to pay you the most interest.

Check if your savings are keeping ahead of inflation with our inflation calculator below:

If you have £100,000 or more in pensions, savings and investments and would like to receive a free initial cash flow forecast, up to the value of £500, please arrange a chat here. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice.

The accounts and rates mentioned in this article are accurate and correct as of 16/01/2025.

* Source: FT & MarketWatch

As we start 2025, we thought it would be interesting to look back at another great year for savers. Although we did see two base rate cuts in 2024, which means that rates not only plateaued, but even started to fall a little, overall it was still a positive year, with interest rates staying higher than previously expected.  

However, it’s not been completely straightforward as market predictions about when and by how much the Bank of England base rate will be cut, has seesawed amid multiple economic shocks.

All of that said, with inflation falling to closer to the Bank of England’s 2% target, there have been more accounts than ever available to savers, paying inflation busting interest rates, even after the deduction of tax.

So let’s do a roundup of how the most popular sections of the savings market have performed over the past year and what is still available.

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Easy Access

2024 started buoyant, as the top easy access rates were pretty close to the highest they had been for years – all of the top accounts were paying more than 5%, with the top rate from Metro Bank paying 5.22%.  

But as inflation started to fall steadily from January, the market started to anticipate that the base rate would be cut at some stage, so the top rates available stalled and even started to fall a little. By April, only a couple of accounts were left in the best buy tables paying at least 5%, although some healthy competition saw things improve a little for a few months giving savers plenty of options to earn more than inflation.

Once the base rate was cut though, the first time in August and then again in November, as expected, especially with variable rate accounts, the rates on offer started to fall – as well as the rates on some of the closed accounts – and of course the rates on the high street bank easy access accounts have all come a cropper.

On a balance of £10,000, the most you can earn with a high street bank is 1.75% AER – but you could be getting as little as 1.15% which is what Lloyds is paying on the Easy Saver Account on balances of up to £25,000!

In the meantime, you can earn 4.75% on a standard easy access account with Gatehouse Bank – that’s the difference of earning £115 or £475 on a deposit of £10,000! I know I could do with an extra few hundred pounds or more which is the reality if you have kept your cash in a top paying account.

There is a clear benefit to monitoring your variable rate accounts closely and switching regularly if you want to keep your accessible cash earning as much as possible.

Fixed Term Bonds

Fixed Term Bonds have been extremely popular over the last year – no surprise when the spectre of interest rate cuts is on the horizon.

And although rates peaked in 2023, reaching the heady heights of over 6%, things were already starting to fall by the beginning of 2024.

Whilst those who opened a 1-year bond this time last year found that the rates available to them were a little lower than they had been earning, if inflation continues to remain at its close to target level, the real returns are likely to be very similar.  

In January 2024 the top 1-year bond was paying 5.5% but inflation stood at 4% and has been on average 2.66% over the last 12 months. On a deposit of £50,000, after 12 months although the total balance including accrued interest would be £52,750, the real value after the effect of 2.66% inflation would be £51,388, importantly still keeping up with the cost of living

Today, although the top 1-year bond is 4.77%, if inflation is close to 2% for the next 12 months, whilst the total balance including interest would be £52,385 in a year’s time, the real return would be £51,358, so virtually the same!  

Once again, this illustrates the importance of shopping around for the best rates, to put as many pounds in your pocket as possible, especially while the rates pay more than inflation. Make hay while the sun shines!

Take a look at our inflation calculator here to see how picking the right savings account could improve your returns.

The picture has been similar across all terms, but interestingly, although the longer-term bonds are still paying less than shorter term bonds, over the last 12 months, the top rates on offer have fallen less on the longest-term bonds – so the gap is narrowing. This indicates that the markets are expecting rates to stay higher than previously anticipated, for longer.

The top 2-year bond was paying 5.25% AER at the beginning of 2024, and the top 5-year bond was 4.75%. But while the top 2-year rate has now fallen to 4.65%, the top 5-year rate is 4.50% - so not much lower if you did want to hedge against further rate cuts over the next few years.

Those looking to tie up some of their cash could and still can earn more than inflation if they choose carefully. And if inflation remains near to the government target for the next few years, if you lock some of your money away for the longer term, you could be feeling very pleased with yourself further down the line, if interest rates and therefore the savings rates available continue to fall.

The good news for savers is that whilst it seems clear that rates are on a downward trajectory, it is already obvious that the markets had got it wrong when they anticipated that the base rate would be quite a lot lower by the end of 2024 than it actually is. It’s now expected that rates will stay higher for longer, hopefully giving savers some stability for a while.

Fixed Term Cash ISAs

Cash ISAs continued to be extremely popular in 2024, as high interest rates meant that savers were paying more and more tax on the precious interest they were earning. Nearly £51 billion has poured into cash ISAs over the last 12 months, according to the latest statistics from the Bank of England.

The good news is that this appears to have sparked some healthy competition between savings providers so that, although the rates available on the top fixed term cash ISAs have fallen too, the decline has been slower than the bonds, which means the gap between the top bond rates (before tax) and the tax-free ISA rates has narrowed.

And once again, the rates on the longer-term accounts have been more resilient overall, which means the gap between the short term and long-term top cash ISAs has narrowed, making it more palatable to consider putting some cash away for longer.

The top 1-year cash ISA in January 2024 was 5.01%, whilst the top 5-year cash ISA was paying 4.30%. Today the top 1-year ISA is paying 4.53%, whilst the top 5-year ISA is paying 4.18% AER – so the gap between the 1-year and 5-year rates has narrowed from 0.71% to just 0.35%.  

And remember, it’s not just the headline rates you want to compare. You need to calculate how much interest you would take home from a bond, versus a cash ISA. If you are a non-taxpayer, or you don’t currently fully utilise your Personal Savings Allowance (PSA), then a cash ISA may not be the best choice.  

However, many more savers do now use their PSA and therefore the tax-free rate of the cash ISA can still be considerably more than the interest earned after tax has been deducted on the taxable non ISA bond equivalents.  

For example, in December 2021 before the base rate started to rise, the top 1-year bonds were paying around 1.30%, and although you could earn a little more if you were prepared to fix for longer, the top 5-year bonds were still only paying around 2%.  

With a 1-year fixed rate bond paying 1.30%, you would need a deposit of £76,924 to breach the £1,000 PSA for basic rate taxpayers.  

With the top 1-year bond paying 4.77% today, just £20,964 will produce £1,000 in interest.

And this is why cash ISAs have become so popular once again. Although the headline rates on bonds look as though they will provide more, they may not if you pay tax on your savings. For example, if you were to deduct basic rate tax from the top 1-year bond paying 4.77%, the net rate is 3.82%. In the meantime, the top 1-year fixed rate cash ISA is paying 4.53% tax free. So, on £20,000 you would take home £764 from the bond, but £906 from the ISA!  

The difference is clear to see – people are simply choosing the option that gives them the highest returns possible. And when tax is taken into account, the higher rates that bonds appear to offer simply become less advantageous compared to fixed rate cash ISAs.  

So, for many the cash ISA allowance is not to be disregarded.

If you’d like to learn more about how we can help you to grow and protect your savings, why not get in touch for a free initial review with one of our expert advisers.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. The accounts and rates mentioned in this article are accurate and correct as at the time of writing

Further to the recent announcement from NS&I that the Premium Bond prize fund rate and the easy access account rates are to be cut from December, as we have come to expect, the state bank has followed this by dropping the rates available on the Fixed Term Guaranteed Income and Growth Bonds – also known as the British Savings Bonds.

Added to that, the 5-year Bond has been withdrawn from general sale, although it is still available for those with maturing bonds.

Are these new bonds competitive?

The new interest rate on the 2-year Growth option is 3.60% gross/AER, and the Income option is 3.54% gross / 3.60% AER – down from 4.10% AER/4.02% monthly.

The new rate on the 3-year Growth option is 3.50% gross/AER, and the Income option is 3.44% gross / 3.49% AER, down from 4% AER/3.95% monthly.

The rates on the 1-year and 5-year bonds have also been cut, although these terms are only available to those with existing bonds that are maturing.

The new 1-year rate is just 3.95% AER/3.88% monthly, down from 4.35% AER/4.26% monthly, whilst the 5-year bond is now offering 3.40% AER/3.34% monthly, down from 3.90% AER/3.83% monthly.

The new rates are disappointing, but the good news is that there are rates available from the rest of the market that are better than even the previous higher NS&I rates, as the table below shows.

In fact on a balance of £50,000 you could be missing out on over £500 a year!

Rates Correct at 23/12/2024

So, these cuts could encourage savers to shop around to earn more.

That said, as you can put up to £1m into each issue of these bonds, some people would prefer to accept a lower rate, in order to minimise the hassle of opening multiple accounts to keep the cash protected. NS&I is unique because it is fully backed by HM Treasury. This government guarantee means that 100% of any money you invest with NS&I is safe, no matter how much you save. That said, other banks or building societies, are protected by the Financial Services Compensation Scheme (FSCS) up to a limit of £85,000 per person per institution, so for those with less than £85,000 or prepared to open multiple accounts, NS&I may not be the first choice.

However, the rise of the cash savings platforms has added another option for those with larger amounts of cash.

Think of a cash savings platform like a savings supermarket, where with a single application and log-in, you can pick and choose multiple competitive savings accounts - from easy access to fixed term bonds - and providers at the click of a button. Whilst not whole of market, cash platforms do make it easier to spread your cash, so that it can be better protected by the Financial Services Compensation Scheme (FSCS).

You can now open, access and switch between multiple competitive savings accounts via a single log-in with the our Savers Hub, powered by Insignis.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice or tax.

The accounts and rates mentioned in this article are accurate and correct as of 23/12/2024.

Inflation has climbed for the second consecutive month, driven by the rising costs of fuel, clothing, and concert tickets, amongst other things. Official figures show the rate of inflation increased to 2.6% in November, up from 2.3% in October, nudging further above the Bank of England’s target of 2%. While this rise was anticipated by economists, it places further strain on households already grappling with the cost-of-living crisis. 

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The combination of higher rents, tobacco duties, music tickets, and rebounding petrol prices contributed to this uptick. Yet, with services inflation holding steady at 5%, well above the level consistent with the Bank of England's long-term goal, the decision this week by the Bank’s Monetary Policy Committee (MPC) to keep the base rate at its current level of 4.75% at the last meeting of 2024, was no shock. 

Despite the recent rise in inflation, things are better compared to 2022, when inflation peaked at over 11%. However, Chancellor Rachel Reeves has acknowledged the continuing struggle for many households. It’s important to remember that a falling inflation rate doesn’t mean prices are dropping—only that they’re rising less quickly.

Implications for interest rates 

The Bank of England’s base rate currently sits at 4.75%, a level considered restrictive. While markets were anticipating significant rate cuts in 2024 and 2025, just a few months ago, recent inflation figures have tempered those expectations. Michael Saunders, a senior policy adviser at Oxford Economics and former member of the MPC, explained: 

“The MPC were unlikely to move interest rates anyway, and the fact that inflation is higher than expected reinforces their tendency to keep rates on hold for this meeting.” 

Looking ahead, Saunders predicts a gradual easing of interest rates: 

“I still think they [the MPC] will be cutting rates during the coming year, but the debate is over how far [these cuts will go]. Services inflation remains stubbornly high at around 5%, which complicates the Bank’s ability to lower rates to a more neutral level—likely somewhere between 3% and 3.5%.” 

This means savers can likely expect rates to remain competitive in the short term, even as borrowers feel the pinch of higher financing costs. 

Good news for savers 

For savers, the persistence of higher interest rates continues to provide opportunities. Top fixed-rate bonds are offering slightly better returns than a month ago:

• 1-year bonds: Up from 4.76% to 4.80%
• 2-year bonds: Jumping from 4.52% to 4.64%
• 3-year bonds: A modest increase from 4.60% to 4.62% 
• 5-year bonds: Rising from 4.49% to 4.52% 

While these increases are not dramatic, they signal stability in savings rates—welcome news for those locking in their cash now. 

What to expect 

Earlier this month, the Bank of England Governor, Andrew Bailey, indicated the possibility of four rate cuts in 2025, which could bring the base rate down to 3.75% by the end of 2025. However, as always, the economy remains unpredictable, with inflation, wage growth, and global factors all poised to influence future decisions. 

For savers, this means a window of opportunity to secure attractive fixed-rate deals. As inflation remains above target, locking in a competitive rate now is a decision unlikely to be regretted. 

Keep an eye on our best buy tables for up-to-date top savings rates – and if you are not already signed up to our newsletter, do so here, as we will bring you all the latest investment, pension, savings and tax planning news, straight to your inbox.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice.

The accounts and rates mentioned in this article are accurate and correct as of 20/12/2024.

NS&I will be cutting the rates on a few accounts, including the ever-popular Premium Bonds from the January draw. But also the Direct Saver and Income Bonds easy access accounts from 20th December.

Andrew Westhead, NS&I Retail Director said "We carefully review our savings rates in response to changes in the broader market. These adjustments help us meet our Net Financing target while balancing the interests of our savers, taxpayers and the wider financial services sector.”

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Why is NS&I cutting rates now?

Unpicking this statement, there are a number of reasons that these rate cuts are happening. The most obvious reason is that the base rate was cut by 0.25% at the beginning of December.

But it could also be because according to its latest unaudited financial results that show the state bank is on target to meet its current Net Financing Target.

As a government department, each year NS&I is given a target of the amount of money it needs to raise – and for the current tax year this is £9 billion – give or take a leeway of £4 billion each way.

At the end of the 2nd quarter of 2023/24 it has raised a net amount of £3.3bn. That said, whilst this means NS&I is within the margins of the target, it is a little under the actual target, which makes this decision all the more disappointing.

Are Premium Bonds worth keeping?

This week’s announcement means that there will now be two cuts in two months, as we had already been notified that the rate on the Premium Bond Prize fund was to drop to 4.15% for the December draw – but this week’s announcement means that the rate will be cut again, to 4%, from the January draw.

However, NS&I has confirmed that the odds of each bond winning a prize has remained at 22,000 to 1. They have achieved this by increasing the number of £25 prizes, while cutting the number of some of the bigger prizes. However, there will continue to be two chances to win £1m each month!

Although disappointing, it’s not likely to cause too much of an exodus as there are still many reasons for savers to keep their Premium Bonds.

Firstly, it’s simply the ‘what if’ factor! There is that frisson of excitement each month; what if I were to win one of the big prizes!

And for taxpayers although on the face of it, the rate of 4% looks less competitive as you can earn up to 4.85% on an Easy Access account, if you pay tax on your savings interest, you’d be hard pressed to find an equivalent savings account paying as much.

For example, if you were to win the equivalent of the new prize fund interest rate of 4% tax free, as a basic rate taxpayer this rate is the equivalent of earning 5% on a taxable easy access account, 6.67% if you are a higher rate taxpayer and 7.27% for additional rate taxpayers!

How will the new easy access rates compare?

From 20th December, NS&I has announced that the rate for Direct Saver will fall to 3.50% gross/AER, from 3.75% and the monthly paying Income Bonds will fall to 3.44% monthly/3.49% AER, from 3.69% monthly/3.75% AER. Whilst this rate cut is in line with the recent base rate fall of 0.25%, it’s still disappointing, especially as these new rates are far lower than base rate, which is now 4.75%.

More importantly, there are plenty of other easy access accounts that are paying more than this.

You could earn up to 4.65% AER in an unlimited easy access account. The Family Building Society Market Tracker Saver (1) can be opened in branch, online, by post or telephone and is offering an annual income rate of 4.65% AER on balances of £500 or more. If you don’t need unlimited access and are happy to open your account online, the Principality Building Society Online Bonus Triple Access Issue 4 is paying 4.85% - but as the name suggests you can only make three withdrawals a year, which includes closing the account.

If you want monthly interest, it’s a little harder to beat if you need to open your account by post or telephone. However Vanquis Bank’s Easy Access Account (Issue 4) is paying 4.55% monthly interest/4.65% AER but this account needs to be opened online.

Kent Reliance’s Easy access savings account issue 75 can be opened in branch or online, and is paying 4.27% monthly/4.35% AER.

As this illustrates, for many people, switching would be a wise thing to consider if you want to have more pounds in your pocket.

That said, while the rates may not be the very best you can earn, NS&I is often considered the gold standard when it comes to protection of savings, and it's not hard to see why. As an institution, NS&I is unique because it is fully backed by HM Treasury. This government guarantee means that 100% of any money you invest with NS&I is safe, no matter how much you save. But, other banks or building societies, are protected by the Financial Services Compensation Scheme (FSCS) up to a limit of £85,000 per person per institution, so for those with less than £85,000 or prepared to open multiple accounts, NS&I may not be the first choice.

The advent of cash savings platforms has also added another option for those with larger amounts of cash.

Think of a cash savings platform like a savings supermarket, where with a single application and log-in, you can pick and choose multiple competitive savings accounts - from easy access to fixed term bonds - and providers at the click of a button. Whilst not whole of market, cash platforms do make it easier to spread your cash, so that it can be better protected by the Financial Services Compensation Scheme (FSCS).

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice or tax.

The accounts and rates mentioned in this article are accurate and correct as of 04/12/2024.

The rise of million-pound Individual Savings Accounts (ISA) portfolios in the UK reflects a growing opportunity for individuals to build substantial, tax-free wealth. According to the Daily Telegraph, Britain's largest ISA holdings stand at more than £11 million, which is testament to the benefits of favourable tax treatment and strategic investment growth within ISAs. In fact, according to HMRC data obtained by savings app Plum, the number of savers who have at least £1 million in a tax-free account went up by almost 20% between 2021 and 2022, with current figures showing that the UK now has 4,850 ISA millionaires. 

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So, what is the appeal of ISAs and how can you utilise the benefits, especially when it comes to tax efficiencies and long-term financial planning strategies.

Why are ISAs so popular?

ISAs provide a unique, tax-efficient savings and investment wrapper. Unlike many other options, both the gains and withdrawals from ISAs are entirely free from income tax, capital gains tax and dividend tax. This advantage becomes increasingly valuable as personal savings and capital gains allowances are reduced.

By contributing to an ISA annually, investors can compound their wealth over time without tax erosion. While there is an annual contribution limit of £20,000 across all ISA types (excluding Juniors ISAs where the limit is £9,000 a year), there is no cap on how much can be accumulated over a lifetime.

Why now is the time to prioritise ISAs

Following the UK October 2024 Budget, capital gains tax (CGT) rates were increased from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher and additional-rate taxpayers. Additionally, capital gains tax allowances have steadily declined in recent years, dropping from £12,300 to £6,000 and now to just £3,000. These legislative changes and the ongoing reduction in tax allowances highlight the growing importance of effective tax planning, with ISAs emerging as an essential tool for mitigating tax liabilities.

Key benefits of ISAs

Tax-free growth

• Any profits from investments held within an ISA are exempt from CGT and income tax, which is particularly valuable given the recent reductions in CGT allowances and increased tax rates.
• Interest earned on cash ISAs and dividends or interest from stocks and shares ISAs are completely tax-free.
• Withdrawals from ISAs are tax-free, regardless of the amount or the purpose of the withdrawal, providing savers with easy access to their funds without worrying about tax implications.

High Annual Allowance

• The annual contribution limit of £20,000 allows individuals to save or invest a substantial amount each year within a tax-free wrapper. Over time, this can lead to significant wealth accumulation.

Wide variety of Investment options

ISAs cater to diverse financial goals and risk appetites, offering a range of options:

• Cash ISAs: are available to those aged 16 or older if, at 5 April 2024, an individual is 16 or 17 and does not have an existing cash ISA, they will be eligible to apply for, and subscribe to, a single cash ISA in any tax year until their 18th birthday. 
  Where an individual aged 16 or 17 holds an existing cash ISA, they may continue to subscribe to it or transfer it to another cash ISA after 6 April 2024. With a contribution limit of up to £20,000 per year (shared with other ISAs). They offer low-risk, tax-free interest and are protected under the Financial Services Compensation Scheme (FSCS) up to £85,000.
• Stocks and Shares ISAs: are for individuals aged 18 or older, with a contribution limit of £20,000 per year. They provide the potential for higher returns and tax-free growth over the long term.
• Lifetime ISAs: are available to those aged 18–39, allowing contributions of up to £4,000 per year, with a 25% government bonus (up to £1,000 per year). These funds are tax-free when used for a first home or retirement, but early withdrawals for non-eligible purposes incur a 25% penalty.
• Innovative Finance ISAs: are open to those aged 18 or older, with a contribution limit of £20,000 per year. They offer tax-free returns from peer-to-peer lending but carry higher risks and are not protected by the FSCS.
• Junior ISAs: are savings accounts available to children under 18 in the UK, enabling parents, guardians, or others to contribute up to £9,000 annually towards the child's future. Offered as either Cash ISAs or Stocks and Shares ISAs, the funds grow tax-free and remain inaccessible until the child turns 18, at which point they gain full control, and the account automatically converts into an Adult ISA.

Inflation protection

• For long-term savers, investing in a stocks and shares ISA can provide growth that outpaces inflation, unlike cash ISAs, which may be vulnerable to erosion of value in a high-inflation environment.

Flexibility

• Flexible ISAs: Allow withdrawals and replacement of funds within the same tax year without affecting the annual subscription limit, making ISAs suitable for both short-term liquidity needs and long-term savings.
• Portability: ISAs can be transferred between providers without losing their tax-free status, enabling individuals to shop for better rates or investment options.

Complementary to other savings tools

• ISAs can be used alongside pensions or other savings vehicles, providing an additional tax-free resource to support long-term financial goals, such as retirement or homeownership.

Why Stocks and Shares ISAs offer greater growth potential

Stocks and Shares ISAs offer greater growth potential, especially in a high-inflation, low-interest environment where cash ISAs often struggle to outpace rising prices. Unlike cash ISAs, which can lead to real-term losses, Stocks and Shares ISAs provide access to higher potential returns through equities and other growth assets. The advantages of Stocks and Shares ISAs include tax-free compounding gains, allowing investors to reinvest returns and benefit from growth without tax implications. Additionally, Stocks and Shares ISAs provide stronger long-term growth. Historically, investments in the stock market have outperformed cash savings over time, making these ISAs a powerful tool for building wealth.

With the reduced CGT allowances and higher CGT rates, stocks and shares ISAs are particularly compelling as they protect all investment growth from taxation, thus offering a significant advantage over non-ISA investments.

The Additional Permitted Subscription (APS) rule

• An additional key feature of ISAs is the Additional Permitted Subscription (APS), which allows spouses to inherit their partner’s ISA balance, tax-free, as a one-time addition upon the partner’s death. This provision helps surviving spouses maintain and grow their financial wealth and is a vital aspect of estate planning.

How APS works:

• Eligibility: Upon death of an ISA holder the account becomes a ‘continuing ISA’. The surviving spouse or civil partner is eligible to inherit the ISA funds as a ‘continuing ISA’, in addition to their own ISA allowance for the year. This addition is one-time but can significantly help to boost the surviving spouse’s tax-free savings. The APS can be used for any type of ISA except for Junior ISAs, including cash ISAs, stocks and shares ISAs, lifetime ISAs and innovative finance ISAs.
• Application: To qualify for APS, couples must be married or in a civil partnership. The surviving spouse can apply for the transfer of their late partner’s ISA into their own. If there is no surviving spouse or civil partner, the benefits of the deceased’s ISA cannot be passed on. The continuing ISA   remains as it is until the earliest of the administration of the estate is complete, the ISA is closed, or three years has passed since death.
• Timing and Amount: APS transfers are based on the higher of the value of the ISA at the date of death or the value of the ISA at the date the ISA ceases to be a continuing ISA.  This ensures the ISA can always be transferred (as it is) into a new ISA. In some cases, the surviving spouse may even receive an additional allowance if the value is higher at the date of death. This sum can be added to the surviving spouse’s ISA, offering tax-free growth. If the deceased held multiple ISAs, the surviving spouse or civil partner can apply for a separate APS for each one.

How we can help

ISAs offer a highly tax-efficient way to build wealth, providing significant tax advantages. By understanding and leveraging the rules governing ISAs, you can integrate them into your financial plan to maximise growth and reduce tax liabilities effectively. With the guidance of a financial adviser, you can make informed decisions about which ISA options best suit you and or family's needs, helping you capitalise on their significant benefits. Overall, ISAs are excellent investment vehicles for anyone looking to grow their wealth tax efficiently and securely. We’re currently offering anyone with £100,000 or more in savings, pensions or investments a free financial review worth £500. Get in touch to find out more.  

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Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning or tax.

The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.