For the first time since saving into a cash ISA, I am actually paying attention to the tax-free allowance this year.
And with the end of the tax year approaching in April, it will not be long until savers are reminded to ‘use or lose’ their annual ISA allowance.
But until very recently, I had never been overly concerned about missing out on the opportunity to save up to £20,000 tax-free in a year. This was especially the case given that a better rate could probably be found from an ordinary savings account.
As a former personal finance journalist, I would also remind readers about the Personal Savings Allowance that enables savers to get up to £1,000 of interest tax-free outside of any ISAs.
But highlighting the Personal Savings Allowance felt more like a formality, at a time when the average rate remained below 0.5 per cent for an instant access account. Getting £1,000 in interest, from an instant access account offering 0.5 per cent for example, would have required savings of around £200,000 in a year.
However, with the Bank of England having consecutively raised the base rate again to 4 per cent last week (February 2), it seems that we need a change in mindset when it comes to savings accounts.
Best savings deals for a £10,000 deposit
20 Jan 21 | 19 Jan 22 | 18 Jan 23 | |
Easy access | 0.60% | 0.72% | 2.97% |
One-year fix | 0.80% | 1.36% | 4.33% |
Source: Moneyfacts.co.uk | |||
So as well as this year’s ISA allowance, for the first time I have found myself paying attention to fixed savings rates while they hit the 4 per cent mark; or trying to make the best of a bad (inflationary) situation, at least.
Because nowadays, locking away a lump sum of around £25,000 for a year could get you £1,000 in interest. Two years ago in contrast, with a top rate of 0.8 per cent you would have to lock away £125,000 for a year in order to get an extra £1,000.
When loyalty does not pay
It is not just savings accounts that are worth reassessing, with current accounts also presenting an opportunity for a return.
The latest calendar quarter saw the most current accounts being switched since the launch of the Current Account Switch Service in 2013, according to Pay UK.
Between October and December, 376,107 current accounts were switched through the service, up from 222,108 in the previous quarter. November alone saw the highest total number of monthly switches ever, at 157,376.
“The high totals at the end of 2022 align with a number of strong incentives and offers from current account providers at the time,” said Pay UK, with Santander receiving the highest net switching gains. Indeed, the bank is currently offering £200 cash back on some of its current accounts if you switch.
While banks offering switching incentives is hardly a new initiative, customers appear to be taking note of them more than before.
A similar comparison could be made with supermarket own-brand products. Again, they are nothing new, but January saw sales of supermarket own-label ranges go up by 9.3 per cent, compared to branded alternatives of which sales rose by 1 per cent, according to Kantar.
So while we contend with a cost of living crisis, perhaps what we can take away from this period is a more proactive approach to current accounts, and a savvier approach to savings; albeit again, attempting to make the best of an inflationary situation.
Chloe Cheung is a senior features writer at FTAdviser
