Martin Lewis issues urgent Cash ISA warning as tax year begins - 'don’t do this or you’ll lose tax-free status'

Speaking on This Morning, the MoneySavingExpert.com founder addressed widespread confusion around cash ISAs following the start of the new tax year.

He warned that many people are sitting in poor performing ISAs they opened years ago, completely unaware they could be earning more interest elsewhere.

Lewis said: "Unless you're in an absolutely pants cash ISA with a very low interest rate, which if you've had it for ten years, you probably are. What you need to do is, you need to get out of that cash ISA."

However, he clarified that this doesn't mean withdrawing money directly from the account.

"A cash ISA is just a savings account which you don't pay tax on. Don't overcomplicate it," Lewis explained.

He emphasised that, just like with any savings account, savers should aim to keep their money in a cash ISA offering the highest possible interest rate.

He pointed out that many people wrongly believe they are locked into their current ISA provider, when in fact they can switch at any time without penalty — as long as they follow the correct process.

Lewis warned: "Do not think your cash ISA is locked into whoever you set it up with."

Instead of withdrawing funds — which risks losing the tax-free status — he advised switching providers directly to take advantage of better rates.

This advice is especially important as many savers remain stuck in legacy accounts opened years ago, some of which are paying as little as 0.5 per cent or even less.

Lewis urged savers to take action if their ISA is underperforming, and not to settle for poor returns. He also explained the proper way to transfer ISAs to ensure savings stay tax-free.

Lewis said: "You go to the new provider, and on the application form it will ask, 'Do you want to transfer any money across?' That’s how you keep the ISA status. Do not just withdraw the money yourself."

The key, Lewis stressed, is that the new provider handles the transfer. He added: "the new provider moves the money from the old provider for you, so it’s still in the cash ISA status."

He issued a strong warning to those thinking of withdrawing the funds themselves saying: "Do not just withdraw the money yourself," this would take the money out of the ISA wrapper, meaning they lose the tax-free benefit.

By using the transfer process, savers can move their funds to higher-interest accounts without compromising their tax advantages.

Lewis also pointed to a major update from the 2024 Spring Budget that could impact how ISAs are managed going forward — reinforcing the need for savers to stay informed and proactive.

Savers can now open and pay into more than one cash ISA in the same tax year, provided they stay within the £20,000 annual allowance, Martin Lewis has confirmed.

The rule change offers greater flexibility, allowing savers to split funds between different ISAs offering better rates.

Long-term savers may have built up large pots spread across several ISAs by consistently using their full allowance each year.

Lewis also reminded savers of tax limits on interest earned outside ISAs. Basic-rate taxpayers can earn up to £1,000 tax-free, while higher-rate taxpayers get £500. Additional-rate taxpayers have no allowance.

For low earners, a little-known £5,000 savings rate may apply — but only if total income is under £17,570.

"Get the best rate, know your tax-free limits, and keep it simple," Lewis advised.