Chancellor Rachel Reeves is reportedly considering a significant reduction in the cash ISA allowance as part of the upcoming Autumn Budget. The Financial Times has indicated that the annual limit for saving into a cash ISA could potentially be halved from £20,000 to £10,000.
Speculation about the reduction of the cash ISA limit emerged earlier this year, with a focus on encouraging more individuals to invest in the stock market to bolster economic growth. Initial reports had suggested the limit might drop as low as £4,000.
However, concerns have been raised by building societies, highlighting the potential negative impact on savers and the likelihood of increased mortgage costs. Building societies heavily rely on deposits such as cash ISAs to support their lending activities.
Recent statistics reveal that in the 2023/24 period, 9.9 million cash ISA accounts were active.
An ISA is a tax-free savings account where interest earned is not subject to tax. Different allowances apply based on your tax rate, with basic-rate taxpayers having an allowance of up to £1,000 before tax is applicable on savings interest. Higher-rate taxpayers have a lower threshold of £500, while additional rate taxpayers do not receive a personal savings allowance. Interest becomes taxable once these thresholds are exceeded.
Various types of ISAs exist, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Junior ISAs cater to children’s savings needs.
Currently, individuals can save up to £20,000 across different types of ISAs, though specific ISAs may have lower contribution limits. For instance, the annual limit for a Lifetime ISA is £4,000.
As of now, no official announcements regarding changes to the cash ISA have been made by the Treasury. Any updates on the cash ISA will likely be revealed during the Budget presentation on November 26.
Martin Lewis, the founder of MoneySavingExpert.com, advised savers to refrain from making hasty decisions until any official changes are confirmed. He emphasized the likelihood of alterations affecting future contributions rather than existing funds in cash ISAs.
When it comes to savings accounts, easy-access accounts allow withdrawals at any time, subject to any provider-specific restrictions. Fixed-rate accounts typically do not permit withdrawals until the term ends, making them less flexible for immediate cash needs.
Currently, Trading 212 offers the top easy-access cash ISA rate at 4.51%, with a bonus for new customers. Vida Savings provides the best one-year fixed cash ISA rate at 4.28%.
For alternative savings options, Zopa offers the highest easy-access rate at 4.75%, while several fixed-rate accounts offer rates of 4.5%.
Regular saving accounts often offer competitive rates but usually come with monthly savings limits. Principality Building Society, for instance, offers 8% fixed for six months on savings up to £200 per month.
