Chancellor Rachel Reeves is reportedly considering a significant reduction in the cash ISA allowance during the upcoming Autumn Budget, possibly halving it from £20,000 to £10,000 annually, as per sources from the Financial Times.
Speculation about cutting the cash ISA limit began circulating earlier this year, with the Chancellor facing pressure to prompt more individuals to invest in the stock market to boost economic growth. Initially, there were talks of decreasing the limit to as low as £4,000.
Despite these discussions, building societies have expressed concerns that altering the cash ISA limit could negatively impact savers and potentially drive up mortgage expenses. This is because these institutions rely on deposits like cash ISAs to support their lending activities.
Recent data indicates that in the fiscal year 2023/24, the nation contributed to 9.9 million cash ISA accounts.
An Individual Savings Account (ISA) is a specialized savings account where interest earnings are exempt from taxation. Basic-rate taxpayers can earn up to £1,000 in interest annually before being subject to tax on their savings interest, with the threshold lower at £500 for higher-rate taxpayers. Additional rate taxpayers do not receive any personal savings allowance. Interest on savings is taxed once it surpasses these thresholds.
Various types of ISAs include cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, with children having Junior ISAs. While the current overall ISA saving limit is £20,000, certain ISAs have lower caps, such as the £4,000 limit for Lifetime ISAs per tax year.
As of now, no official announcements have been made by the Treasury regarding changes to the cash ISA. Any updates on the cash ISA will be disclosed during the Budget presentation on November 26.
Martin Lewis, the founder of MoneySavingExpert.com, previously advised savers to maintain their usual saving habits until any formal changes are declared. Lewis emphasized that if adjustments were to occur, they would likely pertain to future contribution limits rather than affecting existing cash ISA savings.
For flexibility, easy-access savings accounts allow withdrawals at any time, though some providers impose limits on the frequency of withdrawals. In contrast, fixed-rate accounts typically restrict withdrawals until the term’s end, making them less suitable for those requiring immediate access to their funds.
Currently, the leading easy-access cash ISA interest rate stands at 4.51% offered by Trading 212, including a 0.66% bonus for new customers. Vida Savings presents the best one-year fixed cash ISA rate at 4.28%.
Regarding other savings account options, Zopa offers the top easy-access rate at 4.75%, while several fixed-rate accounts yield 4.5% returns.
Regular saving accounts often provide superior interest rates but come with monthly saving limits. For example, Principality Building Society offers an 8% fixed rate for six months on savings up to £200 per month.