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 hinted at a potential cut from the current limit of £20,000 per year to £10,000 for cash ISA contributions.
Speculation about the decrease in the cash ISA limit began circulating earlier, with the Chancellor facing pressure to incentivize more individuals to invest in the stock market to boost economic growth. Initial reports suggested a possible reduction to as low as £4,000.
However, concerns have been raised by building societies, noting that altering the cash ISA limit could negatively impact savers and potentially lead to increased mortgage costs. Building societies heavily rely on deposits, such as those from cash ISAs, to support their lending activities.
Recent data indicates that in the 2023/24 period, approximately 9.9 million cash ISA accounts were used by the population.
As of now, no official changes have been announced by the Treasury. Any updates regarding the cash ISA will likely be revealed as part of the Budget scheduled for November 26. Renowned financial expert Martin Lewis has advised savers to remain calm and continue with their regular saving habits until any official announcements are made.
ISA accounts offer a tax-free way to save money, with interest earned exempt from taxation. Different thresholds apply for taxpayers, with basic-rate taxpayers having a higher threshold of £1,000 in tax-free interest compared to higher-rate and additional rate taxpayers. Various types of ISAs cater to different saving needs, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Children also have access to Junior ISAs.
While the current allowance for ISAs stands at £20,000 across all accounts, certain ISAs have lower contribution limits, such as the £4,000 annual limit for Lifetime ISAs.
For those utilizing easy-access savings accounts, withdrawals are typically allowed at any time, although some providers may restrict the number of withdrawals within a specific period. Conversely, fixed-rate accounts lock in funds until the term ends, making them less suitable for those needing immediate access to their savings.
Among the top rates available, Trading 212 offers a 4.51% rate for easy-access cash ISAs, with a bonus of 0.66% for new customers. Vida Savings provides the best one-year fixed cash ISA rate at 4.28%.
In the realm of other savings accounts, Zopa boasts a leading easy-access rate of 4.75%, while several fixed-rate accounts offer returns of 4.5%. Regular savings accounts typically have higher interest rates but impose monthly savings limits. For instance, Principality Building Society offers a fixed rate of 8% for six months on savings up to £200 monthly.