'Five-year' rule all ISA savers need to know about - and act quickly

Savers are being encouraged to consider other options over cash ISAs with one expert saying the simple rule could help their money earn a higher interest rate

UK consumers are being advised to rethink their use of cash ISAs, with a finance expert suggesting that a straightforward 'five-year' rule could mark a significant uptick in interest earnings.

Amid anticipations of cash ISA rate declines and potential Chancellor-imposed overhauls, numerous institutions are prompting customers to secure their savings now.

Antonia Medlicott, the brain behind Investing Insiders and an advocate for financial education, has offered a different perspective by recommending the investment of the annual £20,000 savings allowance into stocks and shares ISAs, noting their typically superior performance over time.

Medlicott pointed out: "Only 21% of the adult population use investment ISAs compared to 40% who use a cash ISA. Many people avoid investing because they simply don't feel they have the knowledge and education to approach it."

She suggests that those with the capacity to invest for at least five years and take a more long-term perspective will likely benefit from the exercise.

She further stated: "Historically, those who have put their faith in the markets have enjoyed far greater returns than those who used savings accounts instead."

Baroness Helena Morrissey, a seasoned Conservative peer and former head of personal investing at Legal and General, where she managed over £840bn worth of investments, echos this sentiment.

She believes savers have forfeited more than £6.6bn by opting for the perceived security of smaller-yield cash ISAs.

Medlicott has some urgent advice for savers not looking to invest and preferring the safety of a cash ISA: act swiftly to secure the best rates.

She pointed out: "With cash ISAs currently offering up to nearly 5% in interest on deposits and some offering even more with introductory rates, savers can gain peace of mind over the returns they will receive and some great rates.

"However, most of the top-paying accounts offer 'variable' rates, meaning they can go up and down as the Bank of England rate fluctuates. You will generally get easier access to the cash held in these accounts."

With predictions hovering around a possible May cut in rates by the Bank of England, Medlicott urges a pivot towards locking in higher rates with fixed-rate accounts or long-term ISAs now, before it's potentially too late.

"Fixed rate savings accounts typically require you to lock your money away for a set period of time, but offer certainty over interest rates, no matter what the Bank of England does."

Moreover, she mentioned: "If you have spare cash sitting in a low-interest account, moving it into an ISA protects it from tax on interest, dividends, and capital gains."