Rumours of the cash ISA being cut first started circulating earlier this year, with the Chancellor under pressure to encourage more people to invest in the stock market instead
Chancellor Rachel Reeves could slash the cash ISA allowance in half as part of her Autumn Budget next month, according to reports.
The Financial Times suggests the Chancellor is considering amount you can save into a cash ISA every year from £20,000 to £10,000.
Rumours of the cash ISA being cut first started circulating earlier this year, with the Chancellor under pressure to encourage more people to invest in the stock market instead, to help stimulate economic growth. It was previously reported that the limit could be cut to as low as £4,000.
However, building societies have argued that changing the cash ISA limit could be harmful for savers and may push up mortgage costs, as they rely on deposits like cash ISAs to fund their lending.
The latest data shows that in 2023/24, the nation paid into 9.9 million cash ISA accounts.
What is an ISA?
An ISA is a special type of savings account where any interest you earn is tax-free. For all other saving accounts, you can earn up to £1,000 in interest every tax year if you’re a basic-rate taxpayer before you start to pay tax on your savings interest.
The threshold is lower at £500 for higher-rate taxpayers, while additional rate taxpayers don’t get any personal savings allowance at all. You start to pay interest on the money earned from your savings once you earn above these thresholds.
The main types of ISAs are cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Children have their own version called Junior ISAs.
As we’ve mentioned above, you can currently save up to £20,000 across any ISA accounts you may have. However, some ISAs have lower limits – for example, you can only save £4,000 into a Lifetime ISA every tax year.
Are cash ISAs being scrapped?
At the moment, no changes have been announced by the Treasury. If any updates to the cash ISA are confirmed, this will form part of the Budget on November 26.
MoneySavingExpert.com founder Martin Lewis previously urged savers to “keep going” as normal, as nothing has been announced yet.
In a post published to X earlier this year, he said: “To those asking should I take money out of ISAs. If there are changes it will almost certainly (nothings 100%) be on how much you can contribute in future.
“It would be very unlikely to impact any money already in cash ISAs. So don’t do any panic moves, just keep going, nothing has happened.”
What alternative is there to cash ISAs?
Easy-access savings accounts typically allow you to make withdrawals whenever you want. Some providers do limit how many withdrawals you can make in a set period of time, so read the terms and conditions carefully.
Fixed-rate accounts don’t normally allow you to withdraw your money until the end of the term – so these aren’t ideal for households who may need to access their cash.
The top easy-access cash ISA rate right now is 4.51% from Trading 212, which includes a 0.66% bonus for new customers. The best one-year fixed cash ISA rate is 4.28% from Vida Savings.
In terms of other types of savings accounts, the top easy-access rate is 4.75% from Zopa, while there are several fixed rate accounts paying 4.5%.
Regular saving accounts pay the highest rates – but you’re normally limited to how much money you can save each month. For example, Principality Building Society pays 8% fixed for six months on up to £200 a month.
