Savers are being reminded to take advantage of their tax-free allowance as Plum launches a “market-topping” savings product.
This warning comes as Britons are contending with Jeremy Hunt’s decision to freeze tax thresholds which has resulted in fiscal drag, which is often dubbed a stealth tax.
Fiscal drag takes places when wages rise at a time when allowances are frozen, resulting in taxpayers paying more to HM Revenue and Customs (HMRC).
In light of this phenomenon, Plum has introduced a new ISA product to the market which could protect Britons’ savings from tax.
The investment platform is offering its Cash ISA with a competitive variable interest rate of 5.12 per cent.
According to Plum, this is more than double the rate offered by the four main high street banks and higher than the average industry rate of 3.5 per cent.
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Plum has launched a new cash ISA
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This is close to the Bank of England’s base rate of 5.25 per cent which is expected to be cut in the later half of 2024.
Ahead of this, savers are being urged to use high interest accounts as soon as possible before rates are reduced.
Through the Plum Cash ISA, customers will be able to deposit up to £20,000 per tax year, provided they remain within the annual ISA allowance.
It is available to all customers in the UK, who can also benefit from Plum’s smart automation to manage their money.
Those looking to bolster their savings are being encouraged to consider ISAs due to the impact of fiscal drag.
Due to income tax thresholds being frozen, the recent rise in savings rates means more people are being drawn into having to pay tax on any interest earned.
Some four million extra people will be expected to pay income tax, three million more will have been dragged to the higher rate, and 400,000 into the additional rate, according to the OBR.
While savers have a personal savings allowance, if people are dragged into the higher tax bracket, this is halved.
Victor Trokoudes, Plum’s CEO and founder, highlighted why ISAs present the best opportunity for people to “maximise their money”.
He said: “It’s brilliant that people can now get decent returns on cash savings. But high interest, coupled with many people moving into a higher tax bracket, means tax on savings is becoming more of an issue.
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The Bank of England base rate is at a 15-year high of 5.25 per cent GB NEWS“This isn't right – everyday savers shouldn't have to lose out on the tax front just because they want their money to be accessible in cash.”
“We believe in rewarding savers, and that’s why we’re really excited to be launching our market-leading Cash ISA.
“Cash ISAs aren't a new concept, but we’ve reinvented it by doing it the smart way, so savers can also benefit from Plum’s automation.
“You can open an account in just a few taps and manage it easily in the app, alongside your other savings and investment tax wrappers.”