so if you look at our latest statistics there are about 7 million cash iser accounts in the UK and in total there's 31 billion saved inside of them sounds pretty impressive and that's an average of £ 7,750 in each account now this is going to sound a little bit weird to a lot of you but I do think that cash ises might be a waste of money or at least not used in the right way but let me kind of explain before people start having a go at me in the comments section so a cash Isa is one of your Isa accounts that you can use here in the UK and across all of your iser accounts you can put in up to 20,000 per tax year this means that every adult in the UK can save or invest up to £20,000 a year completely taxfree which is great I've gone into detail on other videos explaining isers especially the likes of the stocks and shares Isa so I won't cover the basics here but safe to say these accounts are amazing if you want to help grow your money now with a cash iser your money is fully protected up to the value of £85,000 by the financial services compensation scheme and it's going to get a guaranteed rate of interest which will depend on which provider you choose for example right now if you take a look at the market you can see that lots of accounts are offering around 5% a year on any money inside of them this is way higher than it's been for a long time and this would mean that if you had £10,000 saved in a cash Isa and got 5% on that money you'd make £500 a year in interest so far so good then taxfree interest on your savings and you can do this with virtually no risk at all as it's not like investing where you risk losing your money however here's where the first catch comes in now we all love tax-free savings or tax-free investing and it's something I spend a lot of time talking about on my channel but let's not also forget that to get tax-free savings you don't have to use a cash iser every adult in the UK has a savings allowance which is the amount of money that you're allowed to make in interest without paying a single penny in tax now this tax-free savings allowance is reset every single tax year and it currently looks like this if you're a basic rate taxpayer meaning that you earn less than 50,2 70 a year you have £1,000 a year savings allowance if you earn more than that and you're a higher rate taxpayer you get £500 a year instead of £1,000 and so on up to the additional rate tax payers remember that higher rate taxpayer is anyone earning between 50,2 70 and £1 1225 1,140 up to that point these allowances cover 97% of people as only a very small number of people earn more than that and will not get any allowance at all so with that point covered let's just run a couple of examples which should explain why I think a cash Isa might not be the best account to use remember though I'm not a financial advisor I don't claim to be any kind of guro so please do check everything and always do what's right for you okay so you've got lots of money that you want to save and earn some interest on nice problem to have and let's say that you're a basic rate taxpayer which covers about 85% of earners in the UK if you find a savings account that pays 5% interest a year and you put in any amount up to £20,000 you won't have to pay anything on your cash interest regardless of whether you use a cash ISO or not this is because 5% of £20,000 is £1,000 and that amount is exactly what you're allowed to earn in interest before paying any tax and going back the statistics at the beginning if you have an average size cash Isa right now which has £ 7,750 inside of it then there's no difference to the tax payable using a cash Isa or just a normal savings account both accounts would have no taxes to pay at all as the I is just tax freed by default and then the savings interest in the regular account isn't large enough to go beyond what you're allowed to earn as you might guess if we run another example and say that you had a lot more to save say you had money there for a house deposit then yes it would make sense to try and protect that money from tax where you can however in any one tax year the most you can put into a cash iser would be £20,000 anyway so it would take you a few years worth of contributions to start to really make the most of that taxfree account like an Isa and it would completely use up all of your iser allowances this would mean that you would not be able to use any other types of iser accounts and I think this is probably one of the biggest issues as iser account are so powerful but they're not all created equal for example a cash iser has limited potential and this is because the best result you can get is that interest rate you get your 5% at the moment nothing less and nothing more because there's so little risk to you but compare that to something like a socks and shares Isa where there is a lot more risk but the returns unlimited and in any given year you could see a result like we did last year in the stock market with almost a 20% gain for Global stocks now obviously you can lose money with with investing as well especially in the short term I'm not for one second suggesting that you suddenly stop saving money and invest everything the point I wanted to make though was that if you are saving for the long run you might be blocking up your iser allowance if you decide to use a cash iser when you might be better off just having cash in a regular savings account if I quickly run the numbers and let's say that you were saving for 10 years and putting away2 200 a month and you did manage to get 5% a year in interest every single year at the end of 10 years is you'd have £ 31,200 if you managed to invest it instead and got a long-term interest rate of about average 10% you would have £4,500 now that's a huge difference as you can see there's no guarantees with investing ever as I have said but I'd not want to ever use savings as a long-term builder of wealth personally for me I think trying to make the most of your ISO allowances for Investments is much better than saving also One Thing Worth adding here is that savings rates can sometimes actually be better outside of a cash iser if you just go into something like money saving expert and check the best rates on cash isers and compare that to the best savings rates in normal accounts you'll see that there are better offers available in normal accounts it might not be a huge difference but it is there and it's because an iser account does need a bit more Administration from the providers so they do need to pass on those costs however it's worth saying that if you do want a cash Isa provider with one of the best rates it might be worth checking out trading 212 who have just opened their cash iser accounts as you can see now I've got that notification through on my own app and you can find it if you have the app updated to the latest version and you swipe across to the top you can see the cash Isa section also if you are new to them don't forget there's a free share up for grabs if you use my link in the description which is where I keep all the best offers to the platforms and apps that I use personally anyway hopefully that's covered the point and made you think about how to best use a cash Isa or not depending on your own needs I think really this comes down to trying to be as strategic as possible especially if you have enough money to get close to maxing out your iser accounts this year or any future tax years here's a bit of a bonus tip before we move on to another point if you do have a lot of cash but you don't want to use up your iser allowances because you're trying to save that for investing then one thing you could consider is premium bonds now this isn't a savings account and there are no guarantees with interest rates here but it is fully insured back by by the UK government and you can take money out at any time also the maximum you can put in per person is £50,000 so per couple potentially it's a pretty big sum of money if you Max it out to £100,000 and the best thing about it has to be the fact that any prize winnings are tax-free like I said though please just make sure that you realize that premium bonds aren't guaranteed to give you any returns I just wanted to give you an option as this did come up in a one toone call I had the other day and I think it could work out for some people okay so you might think that after covering all of these negative points I somehow think cash IES are really bad and that's just not true at all the most important thing I wanted to get across in this video was to let you know that you do have a choice and you do have allowances for savings interest I guarantee that lots of people out there never even knew you could get interest on savings up to £1,000 per person without an Isa however with that said let me just explain when I think they could be good as I do like to try and cover the whole story and get into the details even if most people won't even make it this far now if you have don't forget to make sure that you are subscribed and hit the like button for me it does really help out small channels like mine okay on the positive side I do think using a cash iser has many other certain benefits that might not be completely obvious firstly remember that your iser allowances are only given once per tax year and if you don't use them up then you do lose them you can't carry forward your iser allowances so if you're sitting on the sideline with a lot of money don't forget to do this especially if you're in between tax years now with that being the case once money is inside an Isa you can transfer it between different kinds of isers and this doesn't affect your current tax years allowance now this could be useful because let's say that you did have a lot of money sat inside a cash iser but you've realized that you might be better off kind of investing that for the long run instead you can move that money into a stocks and shares Isa now if you had all of your savings outside of an Isa then you wouldn't be able to do this so I do think that this is a positive thing and gives you a few more options also on a non-financial note I think that using a cash Isa or any kind of Isa for that matter is an overall positive thing as clearly you're thinking about being tax efficient now one of the best things we have as UK investors and Savers are these iser accounts and you will be amazed just how many people have no idea that they exist and exactly how to use them in the first place so just by the fact that you are using them means that you are on the right path now I could also argue that if you were a higher rate taxpayer and you had no allowance at all for your savings then using a cash iser would be one of the only ways you could save without paying any tax on your interest you could also use premium bonds too don't forget but then I think most people earning that kind of money aren't the ones using cash Isis anyway they prefer to focus their income on things with a higher long-term returns like investment m in a stocks and shares Isa for example on a final point just as another bonus Point while I remember it don't forget that although you do get £1,000 as a basic rate taxpayer for your savings allowance you can actually get up to £5,000 a year as an allowance which is called the starting rate but this only applies if you earn below the income tax threshold now we only mention this in case you might be young living at home with a part-time job but you have some savings somehow you can check all of those details anyway on the government website here on this page which covers all those details anyway I hope this helped clear things up personally for me I don't use a cash iser as I prefer to maximize my stocks and shares Isa but I do keep my emergency fund cash inside my trading 212 General trading account and I get 5.2% interest on it which is paid daily now even though it's not tax protected and the interest is nowhere near my allowance this works absolutely fine for me but let me know what you think in the comments below and I wonder if you agree that the cash Isa is potentially a waste of money for some people I'll see you in the next video Happy investing
