Rumours have been rife for several months now, that the cash ISA limit could be targeted by the Chancellor, who is under pressure to encourage people to invest in the stock market
Savers will be waiting to see if Rachel Reeves will slash the cash ISA allowance in her Autumn Budget next week.
Rumours have been rife for several months now, that the cash ISA limit could be targeted by the Chancellor, who is under pressure to encourage people to invest in the stock market.
Reports from earlier this year suggested that Ms Reeves was considering cutting the yearly cash ISA allowance to as low as £4,000. You can currently save £20,000 every tax year across any ISA accounts you may have.
It was then suggested she could halve it to £10,000, with most recent reports now claiming that £12,000 is the figure being floated.
Nothing has been announced by the Treasury, with the Financial Times reporting that the Chancellor has still not ruled out a lower figure, should she go ahead with changing the allowance.
Building societies have argued that cutting the cash ISA limit could be harmful for savers and may reduce the number of mortgages that are made available for customers, as they rely on deposits like cash ISAs to fund their lending.
Consumer champions including Martin Lewis have also argued that they don’t believe it will encourage people to invest. The latest data shows that in 2023/24, the nation paid into 9.9 million cash ISA accounts.
What is an ISA?
Individual Savings Account – or an ISA – is a type of savings account where you don’t pay tax on any interest you make. For other saving accounts, you have to pay tax on your interest when you earn above a certain amount.
You can earn up to £1,000 in savings interest every tax year if you’re a basic-rate taxpayer before you start to pay tax. This is known as your personal savings allowance.
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 tax on your savings interest once you earn more than these amounts in interest on your savings. If you earn £1,050 in savings interest, you would not pay tax on the first £1,000 if you’re a basic-rate taxpayer, but you would pay tax on the remaining £50.
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.
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.
According to the latest MoneySavingExpert.com league table, the top easy-access cash ISA rate right now is 4.56% from Trading 121, which includes a 0.71% bonus for new customers. The best one-year fixed cash ISA rate is 4.35% from Isbank via Meteor.
In terms of other types of savings accounts, the top easy-access rate is 4.51% from Monument Bank. The top fix is also from Monument Bank and this pays 4.47% for one year.
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.
