Martin Lewis has issued an urgent warning to those with a savings account as they risk losing thousands of pounds.
The financial expert is urging Britons who have opened a cash ISA more than six months ago to check the interest rate they are getting on their savings.
Interest rates have risen rapidly in recent months as the Bank of England (BoE) tries to curb inflation.
To reflect BoE rates, high street banks have been raising the rate of interest they pay on savings accounts.
The financial expert is urging Britons who have opened a cash ISA more than six months ago to check the interest rate they are getting on their savings
PALewis is advising people to shop around to find the best rates which could mean they benefit from increased interest rates.
His latest advice applies to anyone who has savings of £8,000 or more.
Lewis explained that savers will get a better rate of interest in an ISA than an ordinary savings account, due to tax.
“It’s time for millions to reopen cash ISAs," he told the BBC.
"The top pay 5.7 per cent, and with rates rising, anyone with £8,000 in savings, check now if your money’s in a cash ISA.
“Cash ISAs usually pay slightly less than the equivalent normal savings. So it’s only for those people who would pay tax.
“So it’s roughly over £8,000 for a lower rate taxpayer and £16,000 for a higher rate taxpayer, over those amounts are when you want to start looking at it.”
Lewis then discussed what the best options are currently.
He said: “On easy access savings, Chip pays 4.51 per cent. The top Cash ISA Leeds Building Society and Principality pays 4.2 per cent so normal savings are beating cash ISAs.
Lewis is advising people to shop around to find the best rates which could mean they benefit from increased interest rates
Unsplash“If you are paying tax though, that Chip pays 4.5 per cent but if you were paying 20 per cent tax on Chip, then after 20 per cent tax your equivalent rate is 3.16 per cent.
“If you were paying 40 per cent tax, your equivalent rate is 2.7 per cent, way lower than you would get in a cash ISA.”
He added: “Vanquis Bank pays 6.15 per cent as the top one-year fix in normal savings. NatWest is paying 5.7 per cent in its top cash ISA one year fix.
“Some people who locked into a Cash ISA should be ditching it and paying the penalties. As a general rule of thumb, if you got a Cash ISA more than 6 months ago, you’re probably better to get out of it. If you locked in more than six months ago your rates would have been terrible.
“You will have to pay a penalty to get out but generally you will earn more in the new ISA than the interest penalty will cost you because an interest penalty where the interest isn’t very high isn’t that much.”
