A personal finance expert has warned that savers are missing out on “free cash”.
Speaking on the latest episode of BBC Morning Live, Laura Pomfret explained the importance of owning an Individual Savings Account (ISA). Roughly 78 per cent of adults in the UK don’t have an ISA, which means around 40 million people could be missing out on tax-free savings worth up to £20,000 a year.
Laura explained that an ISA is simply a savings account that has a “tax-free wrapper” around it. Therefore, you can put up to £20,000 a year into it and the interest it generates would not be taxed.
She added: “There are four different types of ISA. We have the cash ISA, which is kind of much like your standard savings account that we all know and love. A stocks and shares ISA, which means you actually invest in the stock market but still in this account. Innovative Finance ISA is a little niche, but these are like peer-to-peer lending platforms, crowd funding platforms, but you can do it within an ISA.
“And a Lifetime ISA, which is something that you would use to buy your first home and or for retirement, you can do it for either of those. Most people can open one, you have to be aged 18 and up to open one, and you can’t hold joint ones like you do savings accounts, so you you hold it yourself.
“You could open one for a child., actually, a junior ISA parent or guardian can open them. And today we’re gonna be talking about the cash ISA.”
One viewer asked the show if she was missing out on free cash’ by not having an ISA. In response, Laura said she was missing out on ‘free cash’ in the sense that the money can grow without the burden of tax.
She further explained that having it in a normal savings account would still grow the money, but it would need to be taxed once it reaches past that threshold. She also warned: “People are missing out…there are 40 million individuals in the UK that don’t have an ISA. There’s probably a lot of different reasons for that, people might think they’ve not got enough money to put into one for example.
“And you don’t need a large sum of money to open an ISA, you can do it with a pound. WIth the current interest rate environment, even holding £200 in an ISA, if you have that, can help generate returns, it’s free money just while it’s sat there.”
She also highlighted that such cash in an ISA with a reputable bank of building society is also legally protected by the Financial Services Compensation scheme for up to £85,000
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