Chancellor Rachel Reeves is reportedly considering reducing the cash ISA allowance by half in the upcoming Autumn Budget. The Financial Times has indicated that the annual savings limit for cash ISAs could potentially decrease from £20,000 to £10,000.
Speculation about the possible cut to the cash ISA limit emerged earlier in the year, with pressure on the Chancellor to incentivize more individuals to invest in the stock market to boost economic growth. Initial reports suggested the limit might even drop as low as £4,000.
However, concerns have been raised by building societies, warning that altering the cash ISA limit could negatively impact savers and lead to increased mortgage expenses, as these institutions rely on deposits from cash ISAs for lending purposes.
Recent statistics reveal that in the 2023/24 period, approximately 9.9 million cash ISA accounts were funded nationally.
An ISA functions as a tax-free savings account where earned interest is exempt from taxation. Under the current regulations, basic-rate taxpayers can earn up to £1,000 in interest annually before being subject to tax on savings interest. The threshold is lower for higher-rate taxpayers at £500, and additional rate taxpayers do not receive any personal savings allowance.
There are several types of ISAs, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Additionally, children have Junior ISAs tailored for their savings needs.
While the Treasury has not announced any modifications yet, any updates regarding the cash ISA will be disclosed as part of the Budget on November 26. Martin Lewis, founder of MoneySavingExpert.com, has advised savers to maintain their current savings habits until official changes are confirmed. Lewis emphasized that any alterations would likely impact future contributions rather than existing funds in cash ISAs.
Easy-access savings accounts offer flexibility for withdrawals, though some providers may impose limitations on withdrawal frequency. Conversely, fixed-rate accounts typically restrict access to funds until the end of the term.
As for current savings rates, Trading 212 offers the top easy-access cash ISA rate at 4.51%, with a 0.66% bonus for new customers. For one-year fixed cash ISAs, Vida Savings provides the best rate at 4.28%.
In the realm of other savings accounts, Zopa offers the highest easy-access rate at 4.75%, while various fixed-rate accounts yield 4.5%. Regular saving accounts, such as the one from Principality Building Society, offer attractive rates, often capped at a monthly savings limit. For instance, Principality Building Society provides an 8% fixed rate for six months on up to £200 per month.
