Expert says 40 million Brits people making £20,000 savings mistake

A personal finance guru has sounded the alarm for savers, claiming they're missing out on a goldmine of "free cash".

On BBC Morning Live's latest segment, money maestro Laura Pomfret delved into the world of Individual Savings Accounts (ISAs) and the staggering fact that a whopping 78 per cent of UK adults are without one. This oversight means nearly 40 million Brits are bypassing the chance to shield up to £20,000 a year from the taxman.

Laura broke down the concept of an ISA as a savings account donned with a "tax-free wrapper". This means you can stash away up to £20,000 annually and not pay a penny on the interest earned.

She elaborated: "There are four different types of ISA. We have the cash ISA, which is kind of much like your standard savings account that we all know and love. A stocks and shares ISA, which means you actually invest in the stock market but still in this account. Innovative Finance ISA is a little niche, but these are like peer-to-peer lending platforms, crowd funding platforms, but you can do it within an ISA."

"And a Lifetime ISA, which is something that you would use to buy your first home and or for retirement, you can do it for either of those. Most people can open one, you have to be aged 18 and up to open one, and you can't hold joint ones like you do savings accounts, so you you hold it yourself."

"You could open one for a child., actually, a junior ISA parent or guardian can open them. And today we're gonna be talking about the cash ISA."

One viewer was curious to know if she was losing out on 'free cash' by not having an ISA. Laura clarified that indeed, she was missing out on 'free cash' as the money in an ISA can grow tax-free.

Laura elaborated that while money in a regular savings account can also increase, it becomes taxable after surpassing a certain threshold. She cautioned: "People are missing out...there are 40 million individuals in the UK that don't have an ISA. There's probably a lot of different reasons for that, people might think they've not got enough money to put into one for example."

"And you don't need a large sum of money to open an ISA, you can do it with a pound. With the current interest rate environment, even holding £200 in an ISA, if you have that, can help generate returns, it's free money just while it's sat there."

She further pointed out that funds in an ISA with a reputable bank or building society are safeguarded by the Financial Services Compensation Scheme up to £85,000.