Millions of savers risk losing money as funds mature next month – 5 steps to take now | Personal Finance | Finance

More than two million savers are being urged to act quickly to secure high-interest accounts before their current funds expire in the coming months.

Adam Thrower, head of savings at Shawbrook said: “The 2022 mini-budget has exacerbated the growing interest rate crisis, sparking a rush among savers to secure higher rates with new one- and two-year fixed accounts. Many have withdrawn. from your existing accounts. The ISA corrects in advance to capitalize on the most competitive rates.”

This increase has given rise to what many are now calling a second ISA season, however, Mr Thrower noted that there has been a “marked increase” in fixed-term accounts due each autumn over the last two years.

CACI data, analyzed by Shawbrook, shows that around 2.2 million fixed-rate accounts, including more than 1.2 million ISAs and more than 900,000 non-ISAs, are expected to mature before the end of the year.

For those with these accounts, which hold a total of £73 billion in savings, Mr Thrower warns that “time is running out” to secure a new high-paying solution.

More worrying is the fact that more than six million people face a tax bill at the end of the year that could be avoided by investing in a tax-efficient account.

To help those approaching ISA season two and wanting to choose the right account, Mr. Thrower shared five key steps to consider.

Consider long-term solutions

While one-year bonds and easy access accounts offer slightly higher interest rates today, Thrower said there are some “distinct benefits” to locking in longer-term accounts.

He explained: “Securing today’s advantageous rates ensures a predictable income stream for years to come, regardless of future rate cuts. This can be especially helpful for those approaching retirement or those who have enough money set aside to handle emergency costs.”

However, he warned: “The window is closing quickly for us to make the most of it. With a third of people over 55 planning to make the most of their savings when they stop working, choosing a high interest rate over a long period can result in substantial savings.”

Accreditation is essential

Before transferring any money to a bank or savings account, people should check that it is protected.

Mr Thrower said: “Under the Financial Services Compensation Scheme (FSCS), you are covered if a bank or building society fails. If this happens, you could claim up to £85,000 per person. You can check this on the FSCS website by typing in the name of the bank to ensure your money is protected.”

Don’t be put off by the lack of presence on the streets

Many major savings providers do not have a high street presence and so by limiting their choice to a ‘big name’ or just a bank with high street branches, people are “limiting their potential earnings”.

Thrower said: “If the bank you are interested in is protected by the FSCS and offers a much better rate than your current rate, then make the switch.”

ISA or not ISA

Another important consideration is taxes. Many providers offer individual savings accounts (ISAs), which allow people to save up to £20,000 tax-free per tax year.

Thrower said: “As interest rates continue to rise, many may find themselves close to the threshold for taxation on their interest income.”

Outside of ISAs, savers are entitled to a tax-free personal savings allowance (PSA) of £1,000 for a basic rate taxpayer, £500 for a higher rate taxpayer and nothing for an additional rate taxpayer.

However, with tax limits remaining frozen, many may feel it would be better to save in an ISA rather than a traditional savings account.

Currently, a higher rate taxpayer saving £10,000 in a one-year fixed account leader (4.85% AER) would put it above the personal savings allowance. Similarly, for a basic rate taxpayer, £20,000 in the same account could take you over the limit.

Thrower continued: “Worrying data from CACI has revealed that the number of accounts at risk of a shock tax bill has doubled in just one year to more than six million, highlighting why savers should consider the benefits of an ISA to reduce the tax burden.

“For higher earners, using ISAs is even more important due to the reduced PSA of just £500 for higher rate taxpayers and no PSA for additional rate taxpayers.”

Use the account that’s right for you

Thrower said: “Every saver is different. Some may have large savings; others may want to use an account for a rainy day fund.

“Whatever you are saving, or however much you are saving, choosing the right account is essential. For those building a rainy day fund, an easy access or early notice account may be a better fit as you can access your money without paying any early withdrawal fees.

For those looking for a new way to save money, every week we round up the top savings accounts, from easy access to Cash ISAs.