Brits rushing to stash cash tax-free before the April deadline are being warned they could make devastating ISA blunders that wipe out up to £20,000 of potential savings.

With the ISA allowance resetting on April 6, millions are comparing providers and scrambling to use their £20,000 annual tax-free limit – a sum that may not be around for much longer.

The urgency has been turbocharged by the Government’s Budget, which set out plans to slash the Cash ISA allowance for under-65s from £20,000 to £12,000 from April 2027, piling pressure on savers to act now or lose out.

It has sparked a 50% surge in online ISA searches, with a wave of first-time savers piling in before the end of the tax year. But experts say many are sleepwalking into costly mistakes that could quietly destroy years of tax-free growth.

Antonia Medlicott, founder and managing director of Investing Insiders, says she repeatedly sees the same errors – mistakes that can cost savers tens of thousands of pounds over the long term. Here are the five ISA traps Ms Medlicott says could prove ruinously expensive.

Thinking ISAs are only for the wealthy

One of the biggest myths is that ISAs are pointless unless you can afford to pour in thousands every year.

Ms Medlicott says: “Many believe that if they can’t afford to put thousands into an ISA each year, then it is not worth doing. This is simply untrue. Even £50 a month, which works out to £600 annually, could add up to five figures over 20 years.

“You can also increase contributions when your income grows, meaning you don’t have to stick to a certain sum.

“Just because you can’t maximise your ISA limit doesn’t mean that you shouldn’t take advantage of ISAs at all; you can always start small and increase your contributions as you become more confident and knowledgeable.”

She adds that even modest saving can deliver eye-catching results. Putting £50 a month into a Cash ISA paying an average 3.9% would build a pot of £18,134 after 10 years – including £6,134 in tax-free interest.

Being frightened of Stocks & Shares ISAs

Cash ISAs feel safe – but that safety can be an illusion. Ms Medlicott warns that inflation can quietly erode savings year after year.

“Cash ISAs are a popular choice for beginners because they are seen as a safe investment,” she says. “Stocks & Shares ISAs, on the other hand, are often seen as gambling due to the extended risks, which scares away savers.

“Whilst it is true that there are risks with S&S ISAs, there is also a hidden risk when it comes to Cash ISAs. If inflation averages 4% and your Cash ISA earns 3%, your money is losing purchasing power every year – this is a guaranteed, silent loss.”

Over the past decade, the average return on a Stocks & Shares ISA has been 9.64%, compared with 3.9% for Cash ISAs.

That means £50 a month invested over 20 years would grow to £36,243 in a Stocks & Shares ISA, compared with just £18,134 in cash – almost half as much.

And with the Cash ISA allowance set to be cut, she warns that parking £20,000 a year in cash may soon no longer be an option.

Letting your allowance slip through your fingers

Another costly error is assuming unused ISA allowance can be carried forward. Ms Medlicott says: “Many beginners assume that they can carry any allowance forward that they haven’t used, however this is false. Once April 6 comes around, any of your £20,000 allowance that is unused is lost forever.”

She warns that failing to use even part of the allowance year after year can be hugely damaging.

“Let’s say you fail to take advantage of £5,000 of your Cash ISA allowance every year for a decade – you will lose out on £10,000,” she says.

“ISAs are not just about this year. They are about creating a permanent tax wrapper on your savings.”

Treating an ISA like a normal savings account

Using an ISA as a piggy bank to dip in and out of can also land savers with an unexpected tax bill. Ms Medlicott says: “You only get a £20,000 allowance a year, and if you dip money in and out, this will quickly be used up. Once you’ve used your allowance, any money after that is subject to tax.”

She warns that someone who puts £20,000 into a Cash ISA, withdraws £1,000 and then puts it back could lose its tax-free status – potentially costing £200 if their personal savings allowance has already been used.

Flexible ISAs can avoid this trap, as they allow withdrawals and replacements within the same tax year without eating into the allowance.

Finally, picking the wrong type of ISA altogether can mean missing out on generous government bonuses. Ms Medlicott says first-time buyers who fail to use a Lifetime ISA could lose up to £1,000 a year in free cash.

“When choosing an ISA, it is very important that you understand what your saving goal is,” she says.

“For example, if you’re looking to buy your first home, then a Lifetime ISA would be the best option. The government will add a 25% bonus on your contributions up to £4,000 a year.”

Those saving for the long term may be better off with Stocks & Shares ISAs, while short-term goals such as a wedding or car may suit a Cash ISA.