Is cash ISA limit being slashed to £4,000? Everything we know so far and what savers should do now

Is cash ISA limit being slashed to £4,000? Everything we know so far and what savers should do now

Chancellor Rachel Reeves is considering cutting the cash ISA limit from £20,000 to £4,000, according to reports.

More than 18 million people currently have a cash Isa and there is almost £300billion saved in them. But earlier this month, Economic Secretary to the Treasury, Emma Reynolds, urged for money to be invested in the stock market instead to help stimulate economic growth. There are cash ISAs, which pay interest on your savings, and stocks and shares ISAs, where any return is based on stock market performance.

Ms Reynolds asked a House of Lords committee: “Why do we have hundreds of billions of pounds in cash Isas?… What can we do together in parliament about trying to drive an investment culture that realises cash is not a good investment, especially in a high-inflation environment?”

In the latest development this week, The Telegraph reported how the Chancellor met with senior City executives, where it was proposed that the cash ISA allowance should be cut to £4,000 a year. Treasury officials told the Financial Times the Chancellor was “listening to ideas”.

The Daily Mail reports that another option being discussed, is combining cash and stocks and shares elements of an ISA. Ms Reeves is reported to have said after the meeting: “I am determined to go further and faster to drive growth and put more money into people’s pockets through our Plan for Change.”

Robin Fieth, Chief Executive of the Building Societies Association, has argued that cash ISAs provide an important source of funding for banks, building societies, as the money is used to provide loans and mortgages to customers. He said: “Cash ISAs help consumers to achieve their savings goals. They play an integral role in the UK savings market and have done for many decades. They represent a policy success upon which we should seek to build, rather than to curb.”

Savers can put away up to £20,000 every tax year into an ISA account and any interest earned is always tax-free. This has been particularly important over the past few years after savings rates improved, as you can only earn a certain amount in interest before you start to pay tax.

The personal savings allowance is £1,000 every tax year for basic-rate taxpayers and £500 for higher-rate taxpayers, while additional rate taxpayers don’t get an allowance at all. You would start to pay interest on the money earned from your savings once you earn above these thresholds.

At the moment, it is just speculation and no changes have been announced. MoneySavingExpert.com founder Martin Lewis urged savers to “keep going” as normal, in a post published on X/ Twitter earlier this month. He said: “There is no news, there’s lots of speculation written up as news, but absolutely zilch has been announced. In fact I doubt anything has been decided yet (though it is being discussed).

“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.”

In a statement given to The Mirror earlier this month, a Treasury spokesperson did not confirm or deny that changes could be introduced to cash ISAs. They said: “We want to help people save for their future goals and build greater financial resilience across the country. We keep all aspects of savings policy under review.”

At the moment, the top cash ISA pays more than the best standard easy-access saving accounts. Easy-access savings accounts typically allow you to make withdrawals whenever you want – although some providers do limit how many withdrawals you can make in a set period of time.

The top cash ISA rate right now is 5.25% from Chip, while the best rate for normal easy-access accounts is 4.75% from Monument Bank. Regular saving accounts pay even more than this – 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.

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 best rate at the moment is 4.63% for a three-year fix from Secure Trust Bank and Close Brothers.

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