Millions of savers across the UK have been issued a stark warning that a simple oversight with their Individual Savings Accounts (ISAs) could be costing them thousands of pounds in potential returns. Financial experts are urging a thorough review of savings strategies to ensure they are not missing out on significantly better performance from their tax-free pots.
Major ISA Rule Changes Looming
The alert comes as the government prepares to implement key changes to how the annual ISA allowance can be used. From the tax year beginning in April 2027, savers under the age of 65 will face new restrictions. They will only be able to allocate up to £12,000 of their annual allowance to either cash ISAs or stocks and shares ISAs. The remaining £8,000 will be exclusively reserved for stocks and shares ISAs, pushing savers towards investment-based products.
Laura Purkess, a personal finance expert at Investing Insiders, highlighted a deeper, ongoing issue: the real-terms erosion of the ISA allowance's value. "The ISA allowance has been frozen at £20,000 since 2017 and is set to remain fixed until 2030/31," she explained. "With inflation having peaked at around 11.1% in October 2022 and wages rising, the amount you can shield from tax is effectively shrinking. More people will hit the limit faster."
Expert Tips to Maximise Your ISA Returns
To combat this, Purkess shared crucial advice for savers. Her number one tip is straightforward: ensure you are in a top-paying account suited to your needs. "For cash ISAs, don't give in to inertia," she urged. "Switching to the top rate could boost your savings by thousands of pounds over the long term."
She also cautioned against a frequent and costly error. "Don't take your cash out of your ISA to switch providers," Purkess stressed. "You can transfer your ISA directly between providers, which means the transaction won't consume any of your precious annual allowance." For those with stocks and shares ISAs, she advised checking for excessive management fees that can silently erode investment gains over time.
The Power of Real Returns and Regular Saving
The team at the investing app Kaldi echoed the call for vigilance, emphasising the critical concept of 'real returns'. Mark Burges Watson, co-founder of Kaldi, explained, "If a cash ISA pays less than inflation, your savings are going backwards in purchasing power, even if the balance looks stable."
He championed the habits of investing early and regularly, which he said matter far more than trying to time the market. "Automating contributions makes a huge difference, particularly for people who struggle to find spare cash," Watson added.
To illustrate the potential, Kaldi's analysis showed that setting aside just £3 a day from age 20 to 70 could see savings grow to between £560,698 and £2,291,845 after fees, despite a total contribution of only £54,750. The Kaldi app facilitates this by allowing users to earn cashback from over 130 UK retailers, which can then be channelled into an investment ISA, a Junior ISA, or other investments.
With rule changes on the horizon and the value of the allowance being squeezed by inflation, the message from finance professionals is clear: proactive management of your ISA is no longer optional if you want to protect and grow your wealth effectively.
