Chancellor Rachel Reeves is reportedly considering halving the cash ISA allowance to £10,000 in the upcoming Autumn Budget. The Financial Times has indicated that the Chancellor may reduce the annual savings limit from £20,000 to £10,000 for cash ISAs.
Speculation about the potential cut to the cash ISA limit emerged earlier this year, with pressure on the Chancellor to urge more individuals to invest in the stock market to boost economic growth. Initially, there were discussions about slashing the limit to as low as £4,000.
However, building societies have raised concerns that altering the cash ISA limit could negatively impact savers and lead to an increase in mortgage expenses as these institutions depend on deposits such as cash ISAs for their lending activities.
Recent data reveals that in the 2023/24 period, the nation contributed to 9.9 million cash ISA accounts.
An ISA is a specialized savings account where the interest earned is tax-free. Unlike other savings accounts, you can earn up to £1,000 in interest annually as a basic-rate taxpayer before incurring tax on your savings interest. The threshold is lower at £500 for higher-rate taxpayers, and additional rate taxpayers do not receive any personal savings allowance. Interest is charged on savings once earnings exceed these thresholds.
ISAs come in various types including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs, with children having Junior ISAs. The current allowance across all ISA accounts is £20,000, though some ISAs have lower limits like the £4,000 cap for a Lifetime ISA each tax year.
As of now, no official changes have been announced by the Treasury. Any updates on the cash ISA will be disclosed during the Budget on November 26. Martin Lewis, founder of MoneySavingExpert.com, has advised savers to remain calm as no formal announcements have been made yet.
Easy-access savings accounts typically allow withdrawals at any time, but some providers may restrict the number of withdrawals within a specific period. Fixed-rate accounts usually do not permit withdrawals until the end of the term, making them less suitable for households needing immediate access to funds.
Currently, the top easy-access cash ISA rate stands at 4.51% from Trading 212, offering a 0.66% bonus for new customers. Vida Savings provides the best one-year fixed cash ISA rate at 4.28%.
For other types of savings accounts, Zopa offers the highest easy-access rate at 4.75%, while several fixed-rate accounts pay 4.5%. Regular savings accounts offer the highest rates but often have monthly saving limits. Principality Building Society, for instance, offers an 8% fixed rate for six months on up to £200 per month.