Cash ISA allowance, USA News (London): Savers will keep the right to put up to £20,000 a year into a cash ISA after John Healey scrapped his predecessor’s plan to cut the limit to £12,000. Healey announced the U-turn at the Budget, telling MPs he would not go ahead with the cut to the tax-free amount that people can put into a cash ISA. He also announced that the Government would work with the industry to create a new starter ISA to reward first-time investors.
Cash individual savings accounts are savings accounts where the interest you earn is free from income tax. Everyone gets an annual ISA allowance, currently £20,000, which can also go into a stocks and shares ISA, where your money is invested in shares, funds or bonds. Gains are tax-free, but you could get back less than you put in. Since 2014, savers have been free to split their allowance between cash and investments however they like. But last autumn, Rachel Reeves announced that from April 2027, under-65s could put only £12,000 into cash. Budget documents described the change as part of a wider strategy to develop a retail investment culture. Healey has now scrapped the cut, meaning savers can keep putting up to £20,000 into a cash ISA.
What Does This U-Turn Mean for Your Money?
The decision to scrap plans to cut the annual cash ISA allowance from £20,000 to £12,000 will give savers greater flexibility over where they put their money, experts said. But with attractive savings rates and uncertainty in investment markets, should you stick with cash or consider a stocks and shares ISA?
Jason Hollands, managing director of corporate affairs at Evelyn Partners, described the reversal as a welcome U-turn, arguing that cutting the allowance was a very blunt instrument to encourage more people to invest. He warned that savers could otherwise have faced greater tax on their hard-earned savings. Andrew Hagger, founder of Money Comms, also welcomed the move, calling it great news for savers looking to shelter their cash savings out of reach of HMRC. Saving should be incentivised by the government to encourage people to build a decent nest egg for their retirement, he added.
When a Cash ISA Makes Sense
Hagger believes current rates make cash particularly attractive, so locking into a cash ISA for a year or two looks like a wise move, he said, adding that some accounts pay interest monthly, which could help savers boost their regular income. If you want to protect your savings, earn tax-free interest and avoid stock market risk, a cash ISA remains a sensible option. It can be particularly useful for emergency savings, a house deposit or money you expect to spend within the next few years. If you want access to your money whenever you need it, look for an easy-access cash ISA rather than a fixed-rate account, which may lock your money away for a set period or impose restrictions on withdrawals. Compare interest rates and check whether they are variable or fixed before committing.
When to Consider Investing
But if you are saving for the longer term, a stocks and shares ISA could offer greater growth potential. Hagger said that stocks and shares are less straightforward at the moment, noting that long term they tend to outperform cash, but there is a lot of uncertainty at present with geopolitical tensions and a potential AI bubble, so things could be quite bumpy in the short term. Investing therefore makes more sense for money you can leave untouched for at least five years and can afford to see fall in value. Returns are not guaranteed, and you could get back less than you invest.
Michael Healy, CEO of IG Consumer, takes a different view on the reported U-turn, arguing that protecting cash ISAs risks encouraging people to hold cash instead of investing for long-term wealth.
Can You Do Both?
Ultimately, you do not have to choose between the two, experts said. You can split your annual £20,000 ISA allowance between cash and stocks and shares ISAs. Keep money you need soon in cash, and consider investing for longer-term goals if you are comfortable with the risks. All of the experts we spoke to warned savers to check the Chancellor’s final announcement before acting on the reported changes.
