Chancellor Rachel Reeves is reportedly considering halving the cash ISA allowance in the upcoming Autumn Budget. The Financial Times has indicated that the annual limit for cash ISAs may be reduced from £20,000 to £10,000.
Speculation about cutting the cash ISA allowance began circulating earlier this year, with the Chancellor facing pressure to incentivize more investment in the stock market to boost economic growth. There were initial reports suggesting a potential decrease to as low as £4,000.
However, building societies have voiced concerns that altering the cash ISA limit could negatively impact savers and potentially lead to higher mortgage costs, as these institutions rely on deposits, such as cash ISAs, to support their lending activities.
Recent data reveals that in 2023/24, approximately 9.9 million cash ISA accounts were funded nationwide.
An ISA is a specialized savings account where interest earnings are tax-free. The current annual threshold for tax-free interest on savings is £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Additional rate taxpayers do not have a personal savings allowance.
Various types of ISAs exist, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, with children having Junior ISAs.
While the Treasury has not announced any changes yet, any updates regarding cash ISAs will be disclosed during the Budget on November 26. Martin Lewis, founder of MoneySavingExpert.com, has advised savers to stay calm until official announcements are made.
Easy-access savings accounts typically allow flexible withdrawals, but some providers impose withdrawal limits. Fixed-rate accounts usually require funds to be locked in until the term ends.
The current top easy-access cash ISA rate stands at 4.51% from Trading 212, while Vida Savings offers the best one-year fixed cash ISA rate at 4.28%. Other types of savings accounts also offer competitive rates.
Regular saving accounts tend to offer higher interest rates but often have monthly savings limits. For instance, Principality Building Society offers 8% fixed for six months on up to £200 per month.
