Monzo has issued a warning to its account holders about upcoming changes to ISA allowances that will affect savers under 65 from next April. The digital bank is urging customers to make full use of their current tax-free allowance before the rules change.
Jo Phillips, general manager for Wealth at Monzo, advised customers to "get ahead" of the changes, which will reduce the amount that can be deposited into cash ISAs each tax year. The update was reported by Express.co.uk.
ISA allowance changes explained
Under existing rules, savers can deposit up to £20,000 each tax year into ISAs, with the allowance split however they choose between cash ISAs and stocks and shares ISAs. However, from next April, savers aged under 65 will only be able to use £12,000 of that allowance for cash ISAs.
The remaining £8,000 will only be available for deposits into investment-based accounts. The change is designed to encourage more people to invest, as stocks and shares typically deliver higher growth over the long term compared with cash savings interest rates.
Ms Phillips told account holders: "My advice to savers is to keep making full use of your annual ISA allowance where you comfortably can - it remains a vital way to earn tax-free interest on your hard-earned savings. If you're under 65, you can still make the most of the full £20,000 limit this tax year. But it's worth getting ahead of next April's changes today."
Monzo's £1 investment option
Ms Phillips urged customers to take action ahead of the changes, saying: "Start researching your options for any savings above the proposed £12,000 cash limit, or even start investing small amounts now to build that habit for the future."
She said many account holders are missing out because they lack confidence to invest. "Millions leave money sitting in cash simply because they lack the confidence or support to invest," she explained. "That's why at Monzo, we've really focused on lowering the barriers to investing."
Monzo customers can start investing with as little as £1, and automated features allow them to top up investments "little and often". Ms Phillips noted that a third of Monzo's customers were first-time investors when the bank launched its investments product, and over half now invest every 30 days.
Policy framework call
Monzo offers a stocks and shares ISA and a general investment account, both of which require customers to hold a current account with the bank. The investment accounts are accessible through the Monzo app.
Ms Phillips also called for policy changes to make investing more accessible. "Ultimately, the priority should be creating a policy framework that enables firms to use technology, personalised support, and real time financial information to help more people take charge of their long-term finances," she said.
The reduced cash ISA allowance is part of a government push to steer savers toward investment products. However, Ms Phillips warned that the system needs to be made "simpler and more accessible" if the government wants to encourage more people to invest.
