Chancellor Rachel Reeves is reportedly considering a significant reduction in the cash ISA allowance as part of the upcoming Autumn Budget. Speculations suggest that the annual savings limit for cash ISAs could be cut from £20,000 to £10,000, according to sources like the Financial Times.
Rumors about the potential decrease in the cash ISA limit have been circulating for some time, with the Chancellor facing pressure to incentivize more individuals to invest in the stock market to boost economic growth. Earlier reports indicated that 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 potentially lead to higher mortgage costs. These institutions heavily rely on deposits from cash ISAs to support their lending activities.
Recent data reveals that during the 2023/24 financial year, 9.9 million cash ISA accounts were actively used by the public.
An Individual Savings Account (ISA) is a specialized savings account where the interest earned is exempt from taxation. Unlike other types of savings accounts, basic-rate taxpayers can earn up to £1,000 in interest annually tax-free before being subject to tax on their savings interest.
For higher-rate taxpayers, the threshold is set at £500, while additional rate taxpayers do not receive any personal savings allowance. Once earnings surpass these thresholds, taxes are imposed on the accrued interest.
Various types of ISAs exist, including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. Junior ISAs cater specifically to children.
Currently, individuals can save up to £20,000 across all their ISA accounts, although certain ISAs have lower contribution limits, such as the £4,000 annual cap for Lifetime ISAs.
As of now, no official announcements regarding changes to cash ISAs have been made by the Treasury. Any updates or modifications to the cash ISA scheme will likely be disclosed during the Budget presentation on November 26.
Martin Lewis, the founder of MoneySavingExpert.com, has advised savers to remain calm and continue with their normal saving habits until any official changes are confirmed, emphasizing that existing funds in cash ISAs are unlikely to be affected.
When it comes to savings accounts, easy-access options allow for flexible withdrawals, although some providers may impose limits on the number of withdrawals within a specific period. Fixed-rate accounts, conversely, typically restrict access to funds until the term concludes, making them less suitable for individuals needing immediate access to their savings.
Currently, the leading easy-access cash ISA rate stands at 4.51% offered by Trading 212, which includes a 0.66% bonus for new customers. Vida Savings provides the best one-year fixed cash ISA rate at 4.28%.
In the realm of different savings accounts, Zopa offers the top easy-access rate at 4.75%, with several fixed-rate accounts providing returns of 4.5%.
For those interested in regular savings accounts, Principality Building Society offers an attractive 8% fixed rate for six months on monthly savings up to £200, albeit with restrictions on the total amount that can be saved monthly.