Why it's time to review your cash ISA

An ideal time to review your cash ISA savings and ensure that your funds are making the most of their potential is at the beginning of the new tax year

With the start of a new tax year, the annual ISA allowance has been reset.

Now might be a good time to check your savings accounts and make sure you're getting the most out of your money, especially with the new opportunity to contribute up to £20,000 to your ISAs.

There is a genuine chance that your ISA funds aren't being invested in accounts that offer respectable growth, despite your belief to the contrary.

The Yorkshire Building Society recently disclosed that millions of people who save money in cash ISAs that pay interest rates of 1 percent or less are losing out on hundreds of pounds in potential interest.

It might be because interest rates have dropped since the accounts were opened, or it might be because the funds have remained in the accounts even after more affordable rates were introduced to the market.

With a limited-time bonus rate, some providers have lured clients with temporarily high interest rates; as a result, your money may be sitting in a bank account because you were unaware that the bonus had ended.

Because interest rates and market conditions can fluctuate, Harriet Guevara, chief savings officer at Nottingham Building Society, says it is "crucial to review your cash ISA regularly" to ensure your savings are making the most of their potential.

"Check rates across providers and ensure your ISA still fits with your financial objectives and risk tolerance," advises Guevara. "It may be worthwhile to modify your approach by diversifying with other ISA products if your objectives or circumstances change," she continues.

In light of this, it's wise to assess if you're receiving the best savings rates and think about transferring funds from low-paying accounts, particularly if the rates are lower than inflation.

Verify that you are utilizing your bonus rate account.

Right now, some of the greatest cash ISAs available on the market offer new customers, in particular, an introductory bonus rate for a predetermined number of months.

For example, Plums 5.92 percent is currently the highest interest rate offered by a cash ISA. Your ISA holdings won't be performing as well after the bonus has ended, even though it looks fantastic on paper.

This is because the rate will drop by 2 points 38 percentage points to just 3 points 54 percent after three months. Even though that interest rate isn't necessarily bad, it still falls well short of the best options available.

In a similar vein, Chip, the second-best cash ISA, pays 5.90 percent (plus a bonus of 1.58 percent), while Moneybox pays 5.67 percent (plus a bonus of 1.47 percent). The rates will decrease after the bonus period concludes.

It's a good idea to see if you can find a better rate elsewhere if you opened an account with a bonus rate during the previous tax year, as it might have ended.

At the moment, Tembo Money and Monument Bank both provide reasonably competitive interest rates of 4 points 80 percent and 4 points 76 percent, respectively, on cash ISAs that do not include bonus rates.

Why maximizing the ISA limit might be worthwhile in the short term.

Recently, there has been a lot of conjecture that the annual tax-free cash ISA allowance might be lowered to just £4,000.

Even though the Spring Statement didn't reveal any changes, chancellor Rachel Reeves has since stated that her team is investigating ways to reform the cash ISA. To help the UK stock market, it has been proposed that changes could encourage more people to transfer their funds into an ISA for stocks and shares.

The specifics would probably be revealed at the Autumn Budget if the Treasury chose to change the cash ISA.

In order to maximize their 20,000 allowance, cash ISA savers may want to take action as soon as possible. This way, you might have already deposited an additional 16,000 if the allowance is reduced to 4,000 later in the year.

"As the government reviews the current cash ISA regime, it's more important than ever to act early and make the most of this valuable savings tool while the rules remain in place," Guevara of Nottingham Building Society told BFIA.

Guevara goes on to say, "Starting early is key." Contributions to your cash ISA made at the start of the tax year allow your savings to grow as tax-free as possible. This can be particularly crucial for long-term objectives like home ownership or retirement planning. You can get more out of your savings the earlier you start.

Is it time to convert your cash ISA assets to stocks and shares?

Transferring your cash ISA savings into a stocks and shares ISA is one way you might be able to increase your returns if you're worried about your money not earning enough interest.

But the performance of the stock market as a whole and the stocks you buy will determine this.

Since Donald Trump announced a new tariff regime on April 2, or "Liberation Day," as he called it, the world's stock markets are currently in a bad state.

In the week after the news, the FTSE 100, which monitors the performance of 100 major companies in the UK, dropped by more than 7%, while the SandP 500, an index of 500 large US companies, fell by 12%.

But according to Moneyfacts, the average return on the stocks and shares in the ISA between February 2024 and 2025 was about 11.86 percent. These gains outweigh even the cash ISA's highest annual interest rate.

Additionally, a recent study by Hargreaves Lansdown discovered that ISA investors who maximized their stocks and shares ISA allowance at the start of each tax year instead of waiting until the last minute could benefit by 34,000 over a ten-year period.

Even though there is no assurance that your stocks and shares ISA will yield the same returns this year due to the nature of the stock market, it might be something you want to think about.

It's best to invest with a long-term perspective and not worry about daily market swings, according to experts. Investors should assess the performance of their portfolios over a period of five years or longer, according to Hargreaves Lansdown.

ISA cash transfer instructions.

Transferring your cash ISA savings to a different provider might be necessary to get the most out of your money.

Usually taking no more than 15 working days, this is a fairly simple procedure that has no bearing on your yearly allowance.

It is crucial to understand the nuances of the process before deciding to transfer your savings to a different ISA provider. For answers to the most frequently asked questions concerning the process, the BFIA has a comprehensive guide on how to transfer an ISA.

It's crucial to adhere to the transfer procedure instead of taking money out of one cash ISA and transferring it to another. You will forfeit that portion of your annual ISA allowance if you choose to do the latter.