Investors will face a charge on any interest paid on cash in a stocks and shares ISA, the Treasury has confirmed in its latest guidance on ISA reforms.

Plans are underway to reduce the cash ISA allowance to £12,000 per year from April 2027 for savers under age 65.

The Treasury is also disincentivising holding uninvested cash in a stocks and shares ISA and restricting how much can be held in cash-style products within this type of ISA.

It has confirmed plans for a 22% charge on any interest or alternative finance return paid on cash held within a non-cash ISA, from April 2027. This may be money that account holders haven’t invested yet or from dividends paid out.

But in some good news for investors, money market funds will be allowed in a stocks and shares ISA as long as they do not make up 100% of the investments.

Common investments held in stocks and shares ISAs such as individual shares, funds, investment trusts, exchange-traded funds and corporate and government bonds, including UK gilts, will not be treated as cash-like assets, the Treasury said.

James Carter, head of platform policy at Fidelity International, said: “We are pleased to see that cash-like investments will remain eligible for non-cash ISAs.

“These products are genuine investment products, holding short-term government and high-quality debt, and form a valued part of many balanced portfolios. Removing them from the stocks and shares ISA framework would have undermined the government’s objective of encouraging more people to invest, by giving customers a cliff edge choice between staying in cash or moving directly into higher-risk, more complex products.”

New restrictions on transfers into cash ISAs

Transfers from stocks and shares ISAs into cash ISAs will not be permitted but it will be allowed the other way round.

Individuals aged 65 and over will still benefit from a higher cash ISA limit of £20,000 per year, if they wish to use the full annual ISA allowance for that type of account.

The transfer restriction will be stopped from this point but the charge on interest earned on cash in a stocks and shares ISA and the prohibition on 100% cash-like investments will remain in place.

A technical consultation is due to be released by the Treasury on how the charge will work.

Greg Davies, head of behavioural finance at Oxford Risk, has already warned that the measure risks backfiring.

He said: “Getting people invested is an inherently behavioural challenge. You do not encourage nervous savers into investing by making the first step feel more complicated, more punitive and harder to reverse.

“People move from cash into markets when the journey feels clear, safe enough, and matched to their goals, time horizon and financial circumstances. Adding tax charges and transfer restrictions to an already confusing ISA system sends precisely the wrong behavioural signal.

“For many would-be investors, this will not create confident investors. It will create more hesitation, more disengagement, and more people doing nothing.”

Rachel Vahey, head of public policy for AJ Bell, warned that the changes are “increasingly complex” and “riddled with unintended consequences” and may mean people just keep money in cash ISAs instead.

She said: “The new rules mean a charge of 22% will be applied to interest paid on cash in investment ISAs. This is a flat rate charge, meaning the same rate applies whether the ISA account holder is a basic rate taxpayer, higher rate taxpayer, or indeed doesn’t pay any income tax.

“The ISA holder cannot invest 100% of their (non-cash) investment portfolio in money market funds, or that would be classed as a ‘non-qualifying’ investment. This means they could invest 99% in money market funds and 1% in, say, UK equities and that would be allowed.

“It also means they could hold 50% of their portfolio in cash, but if the remaining 50% was held in money market funds that wouldn’t be allowed. Whereas if they held 49% in money market funds and 1% in UK equities, this would be permitted under the rules.”

Will investment platforms stop paying interest on cash?

Several investment platforms such as Bestinvest, AJ Bell, interactive investor, Fidelity and Hargreaves Lansdown pay interest on cash held within a stocks and shares ISA.

The rates are not that competitive but the benefit for investors is that they can get cash in the wrapper or receive dividends and decide how they want to invest it.

It is currently unclear if platforms will stop paying interest or if investors will just need to be aware of the charge.

Carter said: “We have consistently welcomed the government’s recent focus on encouraging more people to invest, supporting better long-term outcomes. Recent initiatives such as a review of risk warnings, the introduction of a targeted support regime, and an education campaign on the benefits of investing, will all help to reset the approach to risk and bridge the gap between precautionary cash savings and long-term investment.

“We look forward to the publication of the technical consultation which will include further details required to enable providers to implement these changes.”

A spokesperson for AJ Bell was unable to comment on whether the platform will stop paying interest on cash.

Jason Hollands, managing director of Bestinvest, described the anti-circumvention measures as a "disproportionate response to a problem that may never meaningfully materialise."

He added: "Investors will also need to weigh up the relative difference in returns on a money market fund minus any platform fees, versus holding cash and having the 22% charge deducted."

MoneyWeek has asked Hargreaves Lansdown and interactive investor for comment.

Investment platforms are starting to stop paying interest on uninvested cash.

It comes ahead of the changes to ISA rules from April 2027.

Chancellor Rachel Reeves used her 2025 Autumn Budget to reveal new restrictions on cash ISAs in an attempt to encourage more people to invest rather than keeping their money in cash.

From April 2027, under-65s will only be able to put up to £12,000 into a cash ISA each tax year, down from the current £20,000 that can be used across the tax wrapper. They will still have the overall £20,000 annual ISA allowance, so if they put £12,000 into a cash ISA, the remaining £8,000 could go into a stocks and shares ISA.

Transfers from stocks and shares ISAs to cash ISAs will also be banned as part of the changes.

Plus, HMRC has said it will introduce a charge for those earning interest on cash within a stocks and shares ISA.

The aim is to disincentivise investors from keeping cash holdings in a stocks and shares ISA for a long time and instead encourage them to put the money back into the market.

For now, many of the major investment platforms are still paying interest on uninvested cash.

But J.P Morgan Personal Investing appears to be getting its investors ready for the changes now.

Cash pot changes

It may be tempting to keep money in cash while you decide where to invest, especially if you are earning some interest.

But the Treasury wants to get more people investing, ideally in UK stocks, so the new charge aims to provide a disincentive as it could outweigh any interest earned.

HMRC is due to consult on the changes.

While not explicitly linked to the reforms, J.P Morgan Personal Investing has unveiled plans to remove the interest paid on cash-only pots.

Currently, the robo-wealth manager pays the Bank of England base rate minus 2.5% on its cash-only pots.

This is money that investors can use to drip-feed funds into their portfolio or to protect your balance from market movements ahead of a withdrawal.

It is separate to cash held in the investment pot that goes towards management fees. Interest on this cash is currently paid at the base rate minus 0.75%.

But from 22 June, J.P Morgan said cash-only pots will no longer accrue interest.

Instead, cash‑only pots will remain available for holding cash and drip feeding money.

Any interest accrued up to but not including 22 June 2026 will be paid into your pot at the end of the current quarter.

Interest will still be paid on cash held in your investment pot.

Can you still earn interest on uninvested cash in a stocks and shares ISA?

Most other investment platforms are still paying interest on cash for now.

BestInvest pays a relatively decent 2.98% interest on cash holdings within any of your investment accounts.

Its managing director Jason Hollands said there are no plans yet to change the way cash is treated in its stocks and shares ISA, while HMRC has yet to firm up its plans.

In contrast, AJ Bell’s stocks and shares ISAs, lifetime ISAs, and junior ISAs pay 1.75% interest on all cash balances.

The interest paid can also depend on the amount being held.

For ISAs and junior ISAs, interactive investor now pays 1.11% on the first £20,000, 1.26% on the value between £20,000 and £50,000, 1.36% between £50,000 and £100,000, and 2.21% on the value above £100,000.

Hargreaves Lansdown users can earn 1.51% on cash balances between £0 and £19,999, 1.18% between £20,000 and £99,999, 2.02% between £100,000 and £999,999, and 2.38% on balances worth £1 million and higher.

MoneyWeek has asked the major platforms what there plans are once a charge is introduced.

The allure of a 25% government top up was enough to persuade me to open a Help to Buy ISA in the late 2010s.

But fast forward to 2025 and I’ve decided to do away with the account and put my money elsewhere.

Having moved into my partner’s property last year, and therefore no longer looking to buy a first home, the account was effectively redundant.

Without the 25% bonus, and offering a paltry interest rate of 2.5%, I was losing money in real terms, based on the latest CPI rate of inflation.

Instead, I’ve put 80% of the Help to Buy money into a taxable cash savings account and transferred the remaining 20% into a stocks and shares ISA.

My cash savings account is currently paying over 4% in interest, offering far more than the Help to Buy ISA.

The interest I’ll make from the cash savings account will be well within my personal savings allowance for the 2025/26 tax year. At some point, I will transfer some or all of the money from this savings account into a cash ISA though, to protect it from the taxman.

The 20% I am adding to the stocks and shares ISA is an amount I can afford to lose. Because it’s in an ISA, any returns will be shielded from capital gains, dividend and income tax.

Moving the Help to Buy ISA money into cash savings and a stocks and shares ISA will mean my money will work harder and my returns should be stronger over the long-term.

I considered opening a Lifetime ISA, which also offers a 25% bonus from the government, as you can invest in stocks and shares with these accounts.

However, you only get that bonus if you’re buying a first home (which I no longer am) or withdrawing the money after the age of 60. If you withdraw your cash and it’s not for either of these two reasons, you are faced with a hefty 25% penalty.

I wanted a tax-wrappered account offering more flexibility than this, in case I want to withdraw my money earlier than 60 penalty-free – a stocks and shares ISA allows me to do this.

Millions ‘trapped’ with Help to Buy ISAs

More than two million savers are still stuck with Help to Buy ISAs, a recent Freedom of Information request made by comparison site Finder found.

These savers will not be able to add more money into their accounts after November 2029 and from November 2030, can’t claim the 25% bonus.

To qualify for the 25% bonus, you need to buy a house costing no more than £250,000 outside of London and £450,000 inside the capital. These limits have not changed since the Help to Buy scheme launched in December 2015, despite house prices rising by around 45% between September 2015 and September 2025, according to Land Registry data.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said the Help to Buy ISA could be a ‘real shot in the arm’ for would-be home buyers, but savers who no longer need to get on the property ladder will likely do better putting their money elsewhere.

“If your plans have changed, and you’re no longer buying, this account essentially becomes a savings account with a monthly cap.

“Given that the best rate on offer right now is 3%, it’s not a particularly competitive savings account, so a cash ISA would be a more sensible option. If you want the money for a longer-term goal, you might be better off with a stocks and shares ISA.”

Cuts to cash ISA allowance as Reeves pushes for an investment culture change

Rachel Reeves confirmed in the Budget the cash ISA annual allowance limit will be reduced from £20,000 to £12,000 for under 65s from April 2027. Savers will still retain the overall £20,000 annual ISA limit.

The chancellor is seeking to push more savers towards investing their money rather than relying on the less risky but typically less lucrative option of cash savings.

Her attempts to shift people’s attitude towards riskier forms of saving may not bear fruit though, research suggests.

Polling by AJ Bell found 51% of cash ISA savers would simply put their money into a taxable savings account following a cut to the annual cash ISA allowance.

However, while stocks and shares ISAs are a riskier way of saving, returns are often greater than stashing the cash away in a taxable savings account or cash ISA – if you’re looking to invest over a longer-term period of five years or more.

Analysis from AJ Bell shows a one-off £1,000 investment in the average North America fund back in April 1999, when ISAs were first introduced, would now be worth £6,285, compared to just £2,079 if held in the average cash ISA.

The investment platform found even UK equity funds, despite two decades of market challenges, would have grown the original £1,000 to £3,787, comfortably beating cash returns and inflation over the same period.

Laura Suter, director of personal finance at AJ Bell, said the figures revealed the “hidden cost of playing it safe”.

“Inflation quietly eats away at savings, and even the average cash ISA will have struggled to keep pace. By contrast, investors who were willing to take on some risk have been handsomely rewarded,” Suter said.

If you’re looking to open a stocks and shares ISA, bear in mind you may have to pay certain fees which can impact any gains you make.

You may be charged a platform or account fee, charged as either a percentage of your investment amount or as a flat amount each month or year. You may also have to pay trading or dealing fees each time you buy or sell an investment.

Make sure you read our guides on how to start investing and the best investing apps.

Money market funds and other ‘cash-like’ investments could be subject to the incoming £12,000 cash ISA limit from 6 April 2027, limiting the ability of investors to manage their risk profiles.

Under new rules published by HMRC, ‘cash-like’ investments – which experts believe could include money market funds and similar investments like short-dated bonds – will be subject to tests to establish whether they are eligible to be held in a stocks and shares ISA or a cash ISA.

Beginner investors who are switching from exclusively cash savings towards investing by opening a stocks and shares ISA can currently use money market funds as a bridge between the two. They offer low-risk cash-like returns from within a stocks and shares ISA.

Money market funds have also been rising in popularity and were some of the top funds purchased by DIY investors in November.

But if speculation that money market funds or short-dated bonds would be considered cash-like, the reforms that HMRC is proposing could block new or cautious investors from using these products to manage their risk.

“Blocking money market funds within stocks and shares ISAs would be a serious setback for investors,” said Mark Burges Watson, co-founder of investing app Kaldi. “These funds are among the safest short-term investment options – low-risk, cash-like, and currently yielding over 4%, far higher than instant-access cash ISAs at high street banks.”

MoneyWeek asked HMRC for clarification over whether money market funds would be considered 'cash-like' under the new rules, and how the mechanism for enforcing the respective limits would work - a HMRC spokesperson said: "Rules will be introduced to avoid circumvention of the lower limit for cash ISAs, including tests to determine whether an investment is eligible to be held in a stocks and shares or innovative finance ISA, or is ‘cash like’.

"Whether an investment will qualify for inclusion within an ISA will depend on whether it complies with the rules. The detail of the changes to the rules will be publicised in advance of the change, and following discussions with stakeholders."

The new HMRC rules will also ban transfers from stocks and shares to cash ISAs, as well as implementing a charge on any interest paid on cash holdings within a stocks and shares or Innovative Finance ISA.

Why are investors using money market funds?

Under the current rules, money market funds can be held in a stocks and shares ISA. That means they would theoretically circumvent the upcoming reduction in the annual cash ISA limit to £12,000, which will affect people under the age of 65.

“With the cash ISA allowance cut to £12,000, millions of savers will be forced into taxable accounts for their excess savings,” said Burges Watson. “Money market funds serve as an ideal stepping stone, letting savers park money securely while deciding how to invest or managing short-term market volatility.”

If money market funds were to remain eligible for stocks and shares ISA inclusion (or would otherwise be exempt from the ‘cash-like investment’ restrictions) then savers could theoretically deposit £12,000 annually in a cash ISA and put the remaining £8,000 into money market funds in a stocks and shares ISA – utilising their entire £20,000 ISA allowance but keeping it in low-risk, cash-like investments.

Burges Watson added that restricting access to lower-risk products “undermines the very purpose of ISAs: supporting safe, flexible investment”.

Volatility within the market is a particular concern for many investors, with stretched stock market valuations prompting fears of an AI-driven bubble.

“Record high markets have… served to foster an appetite for lower risk investments such as money market funds and short duration bonds,” said Ryan Hughes, managing director at AJ Bell Investments.

Assets invested in the Money Market model portfolio service (MPS) on AJ Bell’s advised platform tripled in the 12 months to November. The MPS, which is only available to AJ Bell's advised clients, invests in cash, as well as cash alternatives including money market funds and ultra-short-dated bonds.

How would HMRC restrict access to money market funds?

It isn’t clear yet how a potential rule change would be implemented. HMRC's website says that the industry will be consulted on the draft legislation to amend ISA regulations, and that this legislation will appear before Parliament "well ahead" of the April 2027 rule change.

HMRC's statement in response to MoneyWeek's question about enforcement indicates that cash-like investments will likely be excluded from stocks and shares ISA eligibility.

But whatever happens, implementing the block could add further complexity to an ISA system which critics warn is already becoming confusing for beginner investors.

The nature of money market funds may also prohibit HMRC from changing their designation.

“HMRC could have a tough time enforcing these restrictions, as money market funds are classified as investments, carry a ‘Capital At Risk’ warning and are not covered by the FSCS,” said Burges Watson.

Investors will no longer be able to transfer stocks and shares ISA money to cash equivalents under the government’s controversial reforms.

Chancellor Rachel Reeves announced plans in her Autumn Budget to cut the cash ISA allowance for under-65s to £12,000 from April 2027.

The aim is to encourage more people to use their £20,000 ISA allowance to invest in stocks and shares and there are estimates that those leaving money in traditional savings accounts could face paying thousands of pounds extra in tax.

HMRC has now announced more restrictions to incentivise savers towards stocks and shares ISAs.

Transfers from stocks and shares ISAs to cash ISAs will also be banned as part of the changes.

Plus, there will be a charge for those earning interest on cash within a stocks and shares ISA.

This will provide a disincentive for investors to keep cash holdings in a stocks and shares ISA for too long and instead encourage them to put it back into the market.

What are the new ISA transfer rules?

Transfers have been allowed between stocks and shares ISAs and cash ISAs since 2008.

This provided flexibility for people whose strategies and risk appetite may change.

But the system will change again once the cash ISA allowance is cut in April 2027.

An update from HMRC said transfers from stocks and shares and Innovative Finance ISAs to cash ISAs will no longer be allowed.

There will also be tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash like.’

Plus, the government looks set to stop people parking cash in a stocks and shares ISA through a platform, where interest rates have been high in recent years.

Currently, cash holdings held in a stocks and shares ISA, often from investment returns or uninvested money, may earn an interest rate while an investor decides how to use the money.

HMRC said it will introduce a charge on any interest paid on cash held in a stocks and shares or Innovative Finance ISA, creating a disincentive to keep hold of cash in the tax wrapper for too long.

These rules, subject to consultation and new legislation, will apply to investors under the age of 65.

Critics may describe this as yet another stealth tax by the government.

Jason Hollands, managing director of Bestinvest, said: “While it is no surprise they are going to take action – as we predicted this - levying a charge on cash held within stocks and shares ISAs is yet another stealth tax that will impact genuine investors who sometimes decide to park money in cash for a period of time awaiting investment, or because they are nervous about the market environment.

“The ‘tests to determine whether eligible investments are ‘cash like’ will throw doubt about access to money market funds within Stocks and shares ISAs and could even bring short-dated bonds into question.

“There is more uncertainty ahead.”

Lifetime ISA changes

HMRC has also given more clues about changes to the Lifetime ISA, that got a short mention in the Autumn Budget document.

The taxman’s alert said: “The government will consult on introducing a new, first time buyer only product that will provide the bonus when a person uses it to buy a house, removing the need for a withdrawal charge and giving savers flexibility in case their circumstances change.”

This may appease those who have complained about withdrawal penalties and makes the produce similar to the now defunct Help to Buy ISA.

Savers will be up to £1,200 worse-off after five years once cash ISA reforms and new savings taxes are introduced, research suggests.

Chancellor Rachel Reeves used her Autumn Budget last week to reveal plans to cut the cash ISA allowance to £12,000 from April 2027 while also raising the income tax rate on savings by two percentage points, to 22% for basic rate taxpayers and 42% for higher earners from the next tax year.

The combination of both changes could be bad news for savers.

Analysis by InvestEngine found that of the 7.1 million who contribute to cash ISA in 2022/2023, 2 million saved more than £12,000.

The investment platform’s research suggests that millions of savers could be affected as the remaining £8,000 they may have previously put in a cash ISA - the difference between the cash ISA and stocks and shares allowance - could end up being taxed in a mainstream savings account, even with the personal savings allowance.

Here is how savers could be affected once savings income tax rises in 2026 and the cash ISA allowance is cut in 2027.

The impact of cash ISA cuts and savings income tax hikes

InvestEngine’s analysis found that almost 1.5 million basic-rate taxpayers and 462,00 higher-rate taxpayers deposited more than £12,000 into their cash ISA in the previous financial year

But it won’t take much for the taxman to come knocking if cash ISA savers divert their money into savings accounts instead.

A basic rate taxpayer will see the income tax on savings rise to 22% from April 2027.

They still have a personal savings allowance of £1,000.

But if they put £8,000 into a savings account each year, earning the current typical rate of 4.5%, the personal savings allowance would be breached after the third year and they will have paid £264 of tax after five years.

It is worse for higher earners, who will face a 42% savings income tax rate and already have a reduced personal savings allowance of £500.

Higher earners saving £8,000 per year at 4.5% would breach the allowance after just two years and face paying £1,216 in tax after five years.

Andrew Prosser, head of investments at InvestEngine, said: “Our analysis shows that millions of savers regularly deposit more than £12,000 a year into cash ISAs.

"This cut to the allowance could push many into paying unnecessary tax on their savings interest."

How to protect your savings after the cash ISA cut

The cut to the cash ISA allowance will take effect in April 2027, with savers being allowed to put the full £20,000 tax-free limit in cash until then.

But after this date, those who still want to put that extra £8,000 into cash will have to get a bit more creative and look into alternative ways to protect their savings from the taxman.

Stocks and shares ISAs

The easiest way for savers to avoid a new tax bill is by investing instead in a stocks and shares ISA.

That may be easier said than done though, especially if you are uncertain about financial markets.

Nottingham Building Society found only 38% of cash ISA holders nationwide would consider switching to a stocks and shares ISA.

Harriet Guevara, chief saving officer at Nottingham Building Society, said: “Millions of savers rely on cash ISAs as a low-risk way to build financial stability. Two thirds of our cash ISA customers have used the full £20,000 allowance so far this year. These aren’t people with excess wealth - they’re individuals and families working hard to save for the future.

“What’s more, limiting cash ISA deposits is also at odds with this government’s own pledge to double the size of the mutuals sector, threatening to shrink mutual lending capacity, limit access to homeownership, and stall the long-term growth of building societies that reinvest in their members and local communities.

“If the government’s intention is to encourage more investment, these changes must go hand in hand with better financial education.”

Over the long term investing your money in a well-diversified portfolio tends to bring about higher returns than if you were to lock your money away in a savings account. Be aware, however, that the value of your investments can go up as well as down.

For more information, read our guides on saving vs. investing and how to start investing.

Premium Bonds

One of the UK’s most popular alternative savings vehicles is NS&I’s Premium Bonds. Unlike conventional savings accounts, money held in Premium Bonds does not earn a guaranteed interest rate.

Instead, for every £1 you have in Premium Bonds, you get one entry into the monthly Premium Bonds prize draw. Prizes range from £25 to £1 million.

Any money you win from Premium Bonds is entirely tax free, meaning if you are one of the lucky two people who wins the £1 million jackpot, you will be able to keep the entire amount.

You can save a maximum of £50,000 in Premium Bonds, but the drawback is that this money is not guaranteed to grow as you may not win every, or indeed any, month.

Laura Suter, director of personal finance at AJ Bell, said: “Currently based on the average chance of winning your average returns [from Premium Bonds] would be 3.6%. It’s less than the best rate you can get on traditional savings accounts, but for some the lure of winning big plus the tax-free prizes will be enough to attract their cash.”

Use fixed-term accounts

When you save money in a fixed-term savings account, you lock your money away to grow at a specific, fixed rate until the end of the specified term.

While you still have to pay tax on interest earned, this is not due until the end of your term. This means that if you time it right, you could defer the tax bill to another tax year.

This can be useful if you expect to drop into a different tax bracket in a future year, allowing you to have a lower tax rate on the interest your money earns.

Suter adds: “Equally it can be a good move if you’ve got lots of taxable savings this year, and so have already hit your tax-free limit, but may have less next year. It’s a good idea to track the savings accounts on a spreadsheet, so you don’t lose track of when they mature, or use a cash savings hub, so they are all in one place.”

Chancellor Rachel Reeves is slashing the amount millions of savers can put into a cash ISA each tax year. From April 2027, under-65s can put no more than £12,000 into a cash ISA each tax year, down from the current £20,000 cap.

Reeves hopes the move will encourage savers to invest more of their cash.

“The UK has some of the lowest levels of retail investment in the G7, and that is not only bad for business, who need that investment to grow; it is bad for savers, too,” she said during today’s Budget speech.

“Someone who had invested £1,000 a year in an average stocks and shares individual savings account [ISA] every year since 1999 would be £50,000 better off today than if they had put the same money into a cash ISA.”

However, the limit was branded “a sucker punch for savers and deeply disappointing for lenders” by Harriet Guevera, chief saving officer at Nottingham Building Society.

She added: “We support the Government’s aim to boost an investing culture in the UK, but restricting choice is not the way to do it.”

Carol Knight, chief executive of The Investing and Saving Alliance (TISA), a not-for-profit membership organisation, said: "The cash ISA has been an incredibly effective tool in encouraging saving, and there is no clear evidence that reducing the cash ISA limit will encourage more people to invest.”

Some welcomed the decision though. James Carter, head of platform policy at Fidelity International, said: "Today’s announcement marks an important step towards  supporting consumers to achieve better long-term financial outcomes  by  creating a better balance of incentive between cash and equities – fostering a culture of retail investment.”

How will the cash ISA limit change?

From 6 April 2027, the annual cash ISA limit will be set at £12,000. This is within an overall £20,000 annual ISA allowance.

The new cash ISA cap will only affect under-65s.

There is not currently a specific cash ISA allowance. You can put a maximum of £20,000 a year into ISAs. This can be put into one type of ISA, or split across different types.

For instance, you could put some money into a cash ISA, some into a stocks and shares ISA, some into an innovative finance ISA, and, if eligible, some into a Lifetime ISA. There is a separate £4,000 per year Lifetime ISA cap.

If you put the maximum £12,000 into a cash ISA in one tax year, you would only have £8,000 of the allowance left to put into the other types of ISA.

On the other hand, if you put £12,000 into a stocks and shares ISA, you could only put a total of £8,000 into the other types of ISA that tax year.

Over-65s are exempt from the changes and can continue putting up to £20,000 into cash ISAs each year, if they wish to.

What is an ISA?

An ISA is a tax-free savings vehicle – you don’t pay tax on savings interest or income or capital gains from investments in an ISA.

There are five types of adult ISA:

• Cash ISAs
• Stocks and shares ISAs
• Innovative finance ISAs
• Lifetime ISAs
• Help to Buy ISAs (you can no longer open a Help to Buy ISA)

The annual ISA allowance is £20,000 for adults. You can put up to £9,000 a year into a junior ISA, a tax-free account for children.

The annual allowances reset each tax year, which runs from 6 April to 5 April the following year.

You can put up to £4,000 into a Lifetime ISA each tax year, provided this doesn’t exceed the overall ISA annual allowance.

Why put savings in an ISA?

ISAs are becoming increasingly important as a way of shielding money from the taxman.

Savings and investments held in an ISA are tax-free.

Outside of an ISA, you can earn a certain amount of interest on your savings tax-free, thanks to the personal savings allowance. However, frozen tax thresholds and higher interest rates mean more savers are being dragged into paying tax on their savings.

In 2025/26, 2.64 million people are expected to pay tax on their savings – up from just 647,000 in 2021/22 – according to HMRC data obtained via an FOI by AJ Bell.

In the Autumn Budget, Reeves also announced the tax rate on savings income will be hiked by two percentage points across all bands from April 2027 – meaning savers face paying even more in tax on their savings interest.

“There’s no doubt that cash ISA use will explode in the next couple of years,” Laura Suter, director of personal finance at AJ Bell said.

“As more people have faced tax on their savings we’ve seen ISAs become more popular, but the double-pronged effect of higher savings tax rates and a looming plan for cash ISAs to be restricted means savers are facing an attack on two fronts.”

Read more: How to earn over 4% on your cash… using a stocks and shares ISA

Will Lifetime ISAs be reformed?

The government addressed possible Lifetime ISA reform in the 2025 Budget document.

A consultation on the implementation of a new, “simpler” ISA product to support first-time buyers in buying a home will be published in early 2026.

Once the new product becomes available, it will be offered in place of the Lifetime ISA, the government said.

Lifetime ISA savers can put £4,000 a year into this account and get a 25% government bonus – worth up to £1,000 a year.

If you want to use the money to buy a first home, the property must cost £450,000 or less, which critics argue is too stringent.

Savers who don’t meet the withdrawal criteria face a 25% unauthorised withdrawal charge.

Millions of savers in the UK are being dragged into paying tax on their savings interest because the personal savings allowance (PSA) has been frozen for a decade, according to new research.

By the end of the 2025/26 tax year, taxpayers will have paid over £28 billion in tax on their savings interest since the PSA was launched, with basic rate taxpayers alone paying £4.7 billion, analysis of HMRC data and forecasts by Yorkshire Building Society found, outlining the impact of a policy that has been unchanged since it was introduced in 2016.

Despite jumps in interest rates and frozen tax thresholds pushing more people into higher tax bands, the PSA remains frozen at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers, while additional rate taxpayers still have no allowance at all. During the same period, the Bank of England base rate has climbed from 0.50% to 3.75%, instantly pushing ordinary savers over their allowances even on fairly modest sums.

The landscape for savers has materially changed over the past decade. When the personal savings allowance was introduced on 6 April 2016, the majority of easy access accounts paid 1% or less. Now most pay 3% or less. This means while in 2016 basic-rate-tax payers would have been able to put away as much as £100,000 in a typical savings account, in 2026, with interest rates hovering around 3%, savers would only be able to save around £33,000 without breaching their allowance. For those earning over £50,271 and paying higher-rate tax, that amount would fall to around £16,000.

At the same time people need bigger savings nest-eggs to be able to reach ordinary milestones. The median average house deposit has jumped from £25,000 in 2016 to £36,500 in 2024/5 – an increase of 46%, according to the English Housing Survey Headline Report.

Tina Hughes, director of savings at Yorkshire Building Society, said: “Ordinary people are being penalised by a system that simply hasn’t kept pace with reality. These aren’t wealthy investors — they’re people putting money aside for a house deposit, families saving for their children, or those planning a well-earned holiday.

“When the PSA was introduced, almost no one breached it. Today, millions do — not because they’re rich, but because the allowance is frozen and thresholds haven’t moved. People doing the right thing are facing rising tax bills and fewer ways to protect their savings. It’s time for a modern, fair framework that gives savers clarity and confidence.”

Millions at risk of 'unnecessary' tax bill

Basic rate taxpayers (who earn between £12,571 and £50,270) in the UK hold £516 billion in non-ISA savings accounts that have large enough balances to breach the personal savings allowance, separate data from Paragon Bank showed in November 2025.

The personal savings allowance shields some taxpayers from having to pay income tax on savings interest – basic rate taxpayers can earn up to £1,000 a year in savings interest, while the allowance is £500 for higher rate taxpayers.

However, 5.2 million UK savings accounts owned by basic rate taxpayers were on track to earn more than the £1,000 allowance in interest in 2025, the data shows, leaving them with a 20% tax bill on the savings interest above the threshold.

The problem becomes even worse for higher rate taxpayers.

Higher rate taxpayers (people who earn between £50,271 and £125,140) have their personal savings allowance cut by half, leaving them with just £500 of tax-free savings interest outside an ISA.

Nine million UK non-ISA savings accounts owned by higher rate taxpayers, worth over £632.7 billion, were expected to earn more than £500 in interest in 2025, Paragon’s research shows, meaning these savers should prepare for an extra tax bill.

Additional rate taxpayers, who pay the highest rate of income tax, don’t get a personal savings allowance at all, meaning any interest they earn outside an ISA is subject to tax.

Brits who earn above the personal savings allowance in interest have increasingly helped bolster the government’s coffers. HMRC expected to generate £6 billion in income tax on savings interest in 2025, up from £2 billion in the 2022/23 tax year.

Additional rate taxpayers are expected to contribute the most (£4.2 billion), followed by higher rate taxpayers (£1.3 billion), and basic rate taxpayers (£500 million).

Andrew Wright, head of savings at Paragon Bank, said: “Savers should act now to protect their hard-earned money by moving funds into a tax-free wrapper such as a cash ISA.”

Using an ISA to shield your savings

The easiest way for UK savers to shield their savings interest from the taxman is by using an ISA.

You can put up to £20,000 into ISAs each tax year. There are different types of ISA – including cash ISAs and stocks and shares ISAs. The appeal of an ISA is that any interest or investment income earned within the ISA is shielded from the taxman.

For example, let’s assume you are a basic rate taxpayer who has built up an ISA holding of £100,000 by saving the maximum amount in a cash ISA for five years.

If you placed the entire amount into the best cash ISA on the market right now, from Plum, you could expect to earn 4.66% interest over the next 12 months.

At the end of the 12 months, assuming the interest rate did not change, this £100,000 would grow by £4,660. Because this money was held in an ISA, you would not be charged any tax on that.

However, if this £100,000 was held and grown in a non-ISA savings account, the £4,660 earned would breach the £1,000 personal savings allowance, meaning £3,660 of your interest earned would be taxable. You would therefore pay the government £732 in tax.

Adult cash ISA balances surged in 2025 as savers moved to protect tax‑free returns ahead of the Autumn Budget, with Paragon Bank analysis showing cash ISA balances increasing by over £50 billion as non‑ISA balances fell.

Between the end of January and end of December 2025 savers took a big shift towards tax-efficient savings ahead of the anticipated reduction in the cash ISA allowance announced in the Autumn Budget, CACI data for the period found.

Over the period, the average adult cash ISA account balance increased from £15,919 to £17,225. Meanwhile the average non-ISA account balance fell marginally from £11,919 to £11,909. The data suggests savers were seeking to maximise tax-free interest before potential ISA threshold changes in the 2025 Budget.

Total adult cash ISA balances rose by £57 billion during the period, with much of the growth driven by strong demand for fixed-term products. Overall, adult cash ISA balances in accounts totalled £436 billion across 25 million accounts at December 2025.

Fixed-term ISAs accounted for £35.8 billion of the overall increase, rising to £237.7 billion as customers locked in rates ahead of an expected reduction in interest rates. Instant access ISA balances also grew, albeit at a steadier pace, increasing by £22.4 billion to £192.9 billion.

In contrast, non-ISA balances fell by £1.8 billion over the same period to £845.6 billion across 71 million accounts. This was mainly driven by fixed-term non-ISA balances falling as savers reallocated money into tax-efficient wrappers.

Andrew Wright, head of savings at Paragon Bank, said: “2025 marked a clear shift in saver behaviour, with many people taking proactive steps to protect their returns by making greater use of tax-efficient savings. Anticipation of changes announced in the Autumn Budget encouraged savers to review where their money was held and to maximise the benefits of cash ISAs while allowances remained unchanged.

“What’s particularly notable is the strength of demand for fixed-term ISA products. Savers were not only responding to potential tax changes but also looking to lock in competitive rates amid expectations that interest rates would begin to fall. This combination of tax planning and rate certainty made fixed-term ISAs especially attractive.”

If you've used up your annual allowance, we look at other ways to shield your savings from tax in a separate guide.

Cash ISA savers may have to put money away for an extra 13 years to build a half a million pound savings pot and 16 more years for £1 million if the tax-free allowance is cut.

A reduced cash ISA allowance is rumoured to be one of the main policy changes in the chancellor’s Autumn Budget this week.

There is speculations that Rachel Reeves could halve the allowance to £10,000 or to £12,000 in an attempt to boost investment ideally into British stocks.

But analysis by Investec has highlighted the impact this would have on cash savers, ultimately making it harder for them to build wealth.

Investec claims it currently takes 19 years to reach a half a million pound cash ISA pot, based on average rates, and 17 years for the top rates.

But it could take as long as 32 years with a reduced allowance.

There may also be fewer ISA millionaires, with the time taken to build a £1 million pot rising from 32 to 48 years with a reduced £10,000 allowance based on average rates.

Here is how a reduced cash ISA allowance would affect savers.

The cash ISA conundrum

Reeves is rumoured to be considering cutting the cash ISA allowance to push more money into the financial markets.

The hope is that this would benefit UK stocks and shares ISAs but there would be consequences for those who favour cash savings.

Currently, the average cash ISA pays a rate of 2.79% a year, according to Investec.

A saver depositing £20,000 a year into the typical cash ISA would take 19 years to reach the half a million-pound milestone, according to Investec Save analysis, with interest compounded and assuming no withdrawals.

This drops to 17 years for those who open a current top 10 cash ISA, paying an average rate of 4.17%.

However, a saver only depositing £10,000 a year into the average cash ISA would instead take 32 years to save £500,000 – an extra 13 years.

This falls to 27 years if using Investec’s one-year fixed rate cash ISA, currently paying 4.27%.

Building a £1 million cash ISA pot would also get harder. The research suggests it would take 48 years to get to £1 million based on a rate of 2.79% and 40 years at 4.27%. That compares with 32 and 27 years currently.

David Hunt, head of deposits at Investec, said: “Halving the annual cash ISA allowance would make it significantly harder for savers to build meaningful long-term wealth. Our analysis shows that saving £500k in a cash ISA could take an extra 13 years under the rumoured changes.

“This highlights just how powerful consistent saving and the effect of compound interest can be over time, but also how sensitive those outcomes are to policy changes. The ISA has been one of the most successful savings vehicles in the UK, encouraging millions to save tax-efficiently for the future. Reducing the annual limit would inevitably slow that progress for ordinary cash ISA savers, particularly those who are disciplined about maximising their yearly contributions.”

The most recent rumours suggest the cash ISA allowance could be cut to £12,000 and even then it would take around 28 years to get to half a million pounds and 44 years for a £1 million tax-free pot.

There are also warnings that the reduced cash ISA allowance could hit building societies that often offer some of the top rates.

Andrew Montlake, chief executive at London-based Coreco, said: “While we understand the government's logic for encouraging growth and investment rather than saving, with any action there is a reaction.

"Cutting the cash ISA limit could have a real knock-on effect that restricts the level of money building societies get through the door.

"This will potentially mean fewer loans for borrowers, especially in niches such as holiday lets and adverse credit where many building societies come into their own.”

The average value of the UK’s biggest stocks and shares ISA pots are worth 17 times more than their cash equivalents, new figures show, as the Treasury reportedly mulls ways to get ordinary Brits investing more.

All ISAs allow savers to put away up to £20,000 a year, in either cash or shares or both, to grow free of any income tax, dividend tax or capital gains tax. But there are stark differences between cash ISAs and stocks and shares ISAs in how much they grow.

Of the top 25 highest value cash ISAs, the average is worth £640,000, according to data from HMRC obtained in a Freedom of Information request by investment firm InvestEngine.

By contrast, the average value of the top 25 highest value stocks and shares ISAs is £10,980,000 – more than 17 times higher.

It means there is a more than £10 million difference between the average across the highest value cash and stocks and shares accounts.

Even when looking at smaller amounts, stocks and shares accounts have pulled ahead dramatically in the value stakes.

Only 30 cash ISAs have over £500,000 in them, compared to 38,680 stocks and shares ISAs, the figures showed.

While 1,530 cash ISAs have over £250,000 in them, for stocks and shares it’s 244,570.

Andrew Prosser, head of investments at InvestEngine said the numbers underline how investing is clearly the most effective way to grow your long-term wealth and to potentially become an ISA millionaire.

“While cash ISAs will always have an important role, especially for shorter-term financial needs, the figures set out clearly the value of long-term investing, with the highest-value stocks and shares ISAs now worth 17 times that of the top cash ISAs on average,” he said.

We compare cash ISAs vs stocks and shares ISAs in a separate article

Cash ISA reform

The gap between the potential returns on offer from stocks and share ISAs vs cash ISAs has also caught the attention of the Treasury, with chancellor Rachel Reeves trying to turn the British public from a nation of savers into investors.

Reeves reportedly has her sights on ISA reform as the way to do it – potentially with a cut to the cash ISA limit from to as low as £4,000 – with an announcement expected in the upcoming Budget on 26 November.

The chancellor told broadcasters in February: “It’s really important that we support people to save to achieve their aspirations. At the moment, there is a £20,000 limit on what you can put into either cash or equities (ISAs) but we want to get that balance right.

“I do want to create more of a culture in the UK of retail investing like what you have in the United States, to earn better returns for savers.”

There was around £360 billion saved in cash ISAs as of the 2023/24 tax year. Cash ISAs accounted for about 66% of all ISA subscriptions in that period. Only around 3.6 million people hold both investment and cash accounts. Just 4.2 million use ISAs solely to invest.

Cash ISA savers’ ‘won’t switch’

However cash ISA savers have shown a reluctance to want to switch from the safety of cash ISAs.

Research polling 1,400 cash ISA savers – four fifths of whom were aged 65 or over – by Paragon Bank found the majority would not invest in stocks and shares in light of a cut to cash limits. They would switch to regular savings accounts instead, potentially driving up their income tax bill.

MoneyWeek spoke to one reader who said, after losing £5,000 playing the stock market, cutting the cash limit on ISAs still wouldn’t make him invest.

But the government is hoping its Leeds Reforms can help tip the balance. Banks will soon start sending investment opportunities to savers with cash sitting in low-interest accounts for the first time. There will also be a nationwide advertising campaign to highlight the opportunities of investing for people who are able to do so.

Under current trends, moving £2,000 from these low-interest accounts to stocks and shares could make millions of people more than £9,000 better off in 20 years’ time, by the government's reckoning.

Saving vs investing

The numbers are on the chancellor’s side – if she can convince a sceptical British public.

As the Budget, and with it, potential ISA reform, approaches, the data obtained via the FOI reveals a clear and growing divide between saving and investing, Prosser said.

“The difference reflects how consistent investing has proven to be the most effective route to building meaningful, long-term wealth,” he added.

“As the chancellor looks set to adjust ISA rules to encourage more people to invest, it’s these kinds of numbers that truly help demonstrate the potential that investing holds.”

Alongside ISA reform, measures to improve financial education and increase its accessibility should also feature in the Budget,” Prosser said.

“This approach has far greater potential to drive participation in investing than simply placing restrictions on savings and ultimately foster a better investment culture in the UK.”

Stephen Charles, 74, doesn’t know exactly what he invested in 10 or so years ago. A retired secondary school English teacher from Forest Gate, east London, his speciality is Shakespeare not stocks. He went to a financial adviser with “quite a lot of money” seeking to make it grow – instead, over a number of years, he lost £5,000.

“We were told this portfolio was fairly safe. We were going for safe options,” Stephen recalled. “It was a shame we didn't just save that money in a cash ISA or regular savings account, it might have given us a higher return.”

Like 14.4 million Brits (according to analysis this year by investing platform AJ Bell) he’d only put money into cash ISAs, rather than a stocks and shares ISA, before his unsuccessful dabble in the stock market. Now a cash ISA from Coventry Building Society – which he says offers “really good customer service” – is the only place he puts spare money.

All ISAs allow money in them to grow via interest or investment returns entirely free of capital gains tax, dividend tax or income tax. Low risk, high control and very easy to use, cash ISAs are appealing to those who want to hold money in cash, rather than invest.

“After our losses, we're reluctant to get involved with stocks and shares again,” Stephen said. Behavioural finance terms it a bias towards safety. “If you need to withdraw money from a cash ISA, it is easy to do so at any time,” he added. “And of course it's easy to put money in.”

This last part may soon become less true. There’s currently an overall £20,000 ISA limit, but for months, it’s been rumoured chancellor Rachel Reeves wants to slash the cash ISA limit to potentially as low as £4,000 in the Autumn Budget on 26 November. Savers like Stephen could find they have fewer options to generate tax-free, risk-free returns.

Saving versus investing

With his wife, also a retired teacher, Stephen tucks away several hundred pounds a month in cash ISAs and has done so every year since Labour chancellor Gordon Brown introduced Individual Savings Accounts for cash and shares in April 1999 to replace PEPs and TESSAs.

Statistically, the couple could have made more investing. A one-off £1,000 when ISAs launched would now be worth £5,000 in the global funds sector, while £1,000 annually in the same could have grown to £92,000, number crunching by AJ Bell found.

The same one-off payment into a cash ISA in 1999 would be worth £2,079 today, while £1,000 annually in cash would have grown to £36,290.

Laura Suter, director of personal finance at AJ Bell, said: “These figures highlight the hidden cost of playing it safe. While keeping money in cash can feel comfortable, over time it’s an almost guaranteed way to lose purchasing power. Inflation quietly eats away at savings, and even the average cash ISA will have struggled to keep pace.”

Stephen understands higher returns are possible if you risk your money a bit. “I get that's true,” he said. “But our experience is you can also lose money. And that makes us wary.”

Figures suggest his reluctance is representative of most UK savers. HMRC data shows 22.3 million adults hold an ISA but two thirds (66%) of all ISA subscriptions in 2023/24 were into cash. Only around 3.6 million people hold both investment and cash accounts. Just 4.2 million use ISAs solely to invest.

Reeves’ plan to cut cash ISA limits

Some in financial services and, reportedly, the Treasury, see the popularity of cash ISAs as a problem. Current Labour chancellor Rachel Reeves seemingly wants the self-confessedly “risk averse” Charles’ and millions like them to switch to investment.

Reeves’ rumoured plan? Cut the cash amount savers can put into an ISA – potentially from £20,000 to £10,000 or even less – in a bid to get more people investing in British companies to boost their own nest eggs and UK economic growth. No thanks, said Stephen.

“We wouldn't do that. We wouldn't start saving into a stocks and shares ISA rather than the cash ISA. And if we reach the cash ISA limit, we'd probably look for other means of saving,” he said.

Savings interest on money held outside an ISA, however, is liable for tax after you reach your personal savings allowance – £1,000 a year for a basic rate taxpayer and £500 for a higher rate payer. Additional rate taxpayers have zero allowance.

Like many savers, the couple feel they don't know enough about investing. Their final salary Teachers’ Pensions scheme meant they retired at 60 having never needed to worry about how their retirement savings were invested, unlike those with modern defined contribution pension pots. “We're no experts,” Stephen said.

Leeds Reforms

The government has a plan for this too. Under the Leeds Reforms “working people will be equipped with the support they need to invest and grow their savings”, it was announced in July.

Banks will be tasked with sending investment opportunities to savers with cash sitting in low-interest accounts for the first time. Major financial institutions are backing an advertising campaign that will highlight the opportunities of investing for people who are able to do so.

Under current trends, moving £2,000 from these low-interest accounts to stocks and shares could make millions of people more than £9,000 better off in 20 years’ time, by the government's reckoning.

However a nationwide survey of 1,000 cash ISA holders by savings app Moneybox found 87% need a significant savings buffer to feel comfortable investing – with an average threshold of £27,617.

Almost nine out of 10 (88%) of those polled are calling on the government to protect the cash ISA tax-free savings allowance in the upcoming Budget. Just 9% said cutting it would prompt them to start investing more.

Cecilia Mourain, chief savings officer at Moneybox, said: “Millions of people rely on the cash ISA to build their financial future and any changes should be carefully considered.

“A strong cash foundation enables households to weather shocks and pursue long-term goals, from homeownership to retirement.”

Cash saving at risk

Critics say cash ISA money is essentially languishing virtually dormant and should be put to work in the investment markets.

Building societies – which use cash ISA holdings to lend out to mortgage borrowers – dispute this. They also argue the simplicity of the ISA is one of its greatest strengths – savers can put in up to £20,000 every year, switch between the stock market or cash, or have a mix of the two.

Jeremy Cox, head of strategy at Coventry Building Society, said: “Upsetting this balance by reducing the cash ISA allowance is going to make it far more complex in one fell swoop.

“In nudging people toward investing more, the chancellor needs to be careful she doesn't throw the baby out with the bathwater and discourage people from building up their cash savings too.”

Stephen agreed: “I guess I'm quite old fashioned, I inherited habits from my parents of saving rather than spending. But I think we're probably quite typical of a certain type of saver. And I'm just not sure it's particularly appealing for us to invest in stocks and shares.

“I think saving should be encouraged by the government, rather than going down the route of trying to take more risk with our money.”

Overcoming this quiet British resistance multiplied by millions of risk averse Stephens could develop into (another) Budget headache for the chancellor.

MoneyWeek has contacted the Treasury for comment.

Deciding whether to put your money into a cash ISA or a stocks and shares ISA can feel like a head-scratcher – but it doesn’t have to be.

The two serve very different purposes, and can work well alongside each other. The important thing is having a clear idea of what you want out of the savings in your cash ISA, and what you’re planning to do with the money you invest into a stocks and shares ISA.

In brief, cash ISAs make a good home for money that you can’t afford to lose. That could include an emergency savings pot, or cash you’re putting aside for a big purchase within the next few years.

But because it pays relatively low levels of interest, cash hasn’t historically been the best way to grow your wealth over the long term. For that reason, any money that you aren’t likely to need in an emergency or within a one to two year timeframe could be put into a stocks and shares ISA where, despite the risk of greater short-term volatility, it will hopefully increase in value more over the long term.

“When it comes to choosing between a cash ISA and a stocks and shares ISA, the key question is: are you saving for the short term or the long term?” said Laura Suter, director of personal finance at investing platform AJ Bell. “If you’re setting money aside for an emergency fund, typically three to six months’ worth of expenses, then a cash ISA is a solid option.”

This way, any money you need at short notice or in the case of emergency is protected and easily accessible.

But for long term goals such as retirement plans or home improvements, Suter believes a stocks and shares ISA is more effective than a cash ISA.

“Markets tend to rise over time and outperform cash, despite short-term fluctuations,” she said.

The advantages of cash ISAs

Above all else, cash ISAs offer you security and peace of mind that any money you contribute will at least hold its value in nominal terms.

Stock markets can be volatile, and your investments can fall in value, particularly over short term periods, so investments in the stock market could be worth less than the amount you initially invested, depending on when you withdraw the money

That means cash ISAs are a great place to store money that you think you might need within the short to medium term.

If you are planning a significant purchase within the next one to two years, or building an emergency pot, then a cash ISA might be a better option than a stocks and shares ISA.

It’s recommended people hold an easy to access emergency savings pot which covers three to six months of essential spending, before considering locking investments away longer-term.

The advantages of stocks and shares ISAs

Advocates of investing often highlight that in real terms, cash holdings tend to be eroded by inflation over time, despite a recent period when the best cash ISAs typically offered above-inflation rates – around 4.66% as of May 2026, for example. On the other hand, despite greater volatility over the short term, stock markets have historically tended to rise in value more than cash over the long term.

According to figures obtained by investment platform InvestEngine through a Freedom of Information (FOI) request to HMRC, an individual who had maxed out their cash ISA allowance every year since ISAs were launched in 1999, earning interest in line with the average interest rate banks lend money to each other, would have accumulated £418,176 by February 2026.

In contrast, someone who invested their full £20,000 annual allowance each year in a stocks and shares ISA – such as an exchange-traded fund (ETF) tracking global stock markets – would now be an ISA millionaire, with £1,357,964 in their account, more than three times higher than the equivalent in a cash ISA.

This divergence reinforces “how investing early and consistently in a diversified portfolio can make a meaningful difference to long-term, tax-free wealth as part of a broader financial plan”, according to InvestEngine’s head of investments Andrew Prosser.

In a bid to encourage Brits to take advantage of this long-term wealth-building potential of investments, the government announced a reduction in the cash ISA limit for under-65s. From the start of the 2027/28 tax year, these savers will be limited to putting £12,000 per year into cash ISAs, rather than the overall £20,000 annual ISA allowance.

It means under 65s will need to put £8,000 into a stocks and shares ISA in order to maximise their annual £20,000 allowance. Over 65s can continue using the full ISA allowance of £20,000 with cash ISAs, if they wish to.

HMRC also confirmed that certain ‘cash-like’ investments, potentially including money market funds, would be excluded from the stocks and shares ISAs allowance to prevent cautious savers circumventing the limit.

Do you need to choose between a cash ISA and a stocks and shares ISA?

Despite the new cash ISA limit, there is no need to “choose” between either a cash ISA or a stocks and shares ISA. The two are not mutually exclusive, and as above, it makes sense to put some of your money into one and some into the other.

The government is expected to make further changes to help people allocate their excess funds however works best for them.

From April 2026 a new ‘Targeted Support’ service will be available, which could equip more people to make the right financial decisions for themselves. “This includes understanding the benefits of moving excess cash into a stocks and shares ISA, potentially benefitting from much higher returns, albeit at the expense of the ‘no loss’ security of cash savings,” said Steven Cameron, pensions director at Aegon.

Cash appears to still be king among the UK’s savers with two-thirds of cash ISA savers saying they would not switch to a stocks and shares ISA even if the limit was reduced, according to new research.

Speculation has been swirling for months chancellor Rachel Reeves will cut the amount of cash savers can put away in an ISA from £20,000 to potentially £10,000 or even £5,000. Current cash ISA savings would be unaffected.

The headline driver behind a cut to the cash ISA limit, if it goes ahead in the Autumn Budget, is to get Britain investing more in British companies via stocks and shares held in an ISA, where gains on cash and investments grow tax-free.

But research polling 1,400 cash ISA savers – four fifths of whom were aged 65 or over – by Paragon Bank found the majority would not invest in stocks and shares in light of a cut to cash limits. They would switch to regular savings accounts instead, potentially driving up their income tax bill.

Almost two-thirds (62%) said they would not consider moving their money to a stocks and shares ISA if the cash ISA limit were reduced. Instead, 57% would opt for a regular savings account, potentially exposing themselves to tax on interest earned.

Other alternatives included Premium Bonds (16%), stocks and shares ISAs (18%), spending the money (16%), or gifting it to friends or family (13%).

Two-thirds (67%) said that the risk of losing money concerned them most about diverting savings into a stocks and shares ISA, followed by stock market volatility (65%). Fees and charges concerned 37%, with a fifth citing a lack of knowledge.

Andrew Wright, head of savings at Paragon Bank, said: “The vast majority of cash ISA savers are reluctant to expose their money to the risks associated with equities, despite the potential tax implications.

“Ultimately, it demonstrates that if the cash ISA threshold is reduced in the upcoming Budget, we’re likely to see an increase in savers paying more tax on their savings interest.”

Cash ISA tax grab?

Savers are also dubious about the motives behind the rumoured move. In March, when speculation first landed about cutting the cash ISA limit, asked about the potential reduction Reeves said she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment” in Britain.

But nearly three-quarters (72%) of savers asked in the Paragon Bank survey believe any cut to the cash ISA would in fact be designed to increase tax revenue from savings. Just over half (54%) believe it is intended to increase investment into equities.

Basic rate income taxpayers can earn £1,000 a year in interest before being taxed, but this reduces to £500 for higher rate taxpayers and there is no personal savings allowance for additional rate taxpayers.

Many cash ISA savers, far from needing to be nudged into investing by government policies, have said they already typically invest in a balanced portfolio of investments in other asset classes, according to the survey.

While half also hold cash in Premium Bonds, 27% invest directly in company shares and a fifth (21%) invest via investment funds or trusts. Other investments included company or government bonds (7%), property (6%) and alternative investments, such as wine or art (2%).

The primary reason for choosing a cash ISA remains its tax-free interest, cited by 93% of respondents. When asked about their savings goals, just over half (51%) said they save for general purposes, over a third (38%) for financial security, a quarter (28%) for retirement, and just over one in 10 (15%) for emergencies.

The survey also suggested overwhelming support for maintaining or increasing the current £20,000 cash ISA annual allowance, with 57% of savers stating the limit is appropriate and a further 39% calling for it to be raised. Only 1% felt the threshold should be reduced.

Nearly two-thirds of those asked said they already saving between £15,000 and £20,000 annually – close to the current maximum cash ISA allowance.

Cash ISAs are the most widely used type of ISA. In the 2023/24 tax year, 66% of all ISA contributions were to cash ISAs, bringing total cash ISA holdings to £360 billion, according to government figures.

Savers paying income tax on their nest eggs with no ISA allowance left have some other options if they want to shield their money from HMRC.

Over two million people are forecast to pay income tax on their savings interest in 2025/26 thanks to frozen income tax thresholds, a fixed personal savings allowance (PSA) and higher interest rates on saving accounts, according to research by investment platform AJ Bell.

Higher and additional-rate taxpayers are particularly vulnerable as their PSA’s are lower than basic-rate taxpayers.

Despite inflation slowing to 3%, people’s hard-earned cash is still being eroded in real terms and even though savings rates have steadily fallen since 2023, returns could nevertheless be high enough to breach the PSA.

Alice Haine, personal finance analyst at investment platform Bestinvest, said: “While inflation has eased to 3% and is expected to fall to the Bank of England’s 2% target by April, that’s not only the issue savers need to consider.

“Many could still end up paying tax on the interest they earn, particularly on the most-competitive accounts, if their returns push them above their personal savings allowance.”

The prospect of having to pay tax on savings interest has seen the popularity of adult ISAs boom, with 15 million people paying into one in 2023/24, the highest amount since 2010/11.

The annual ISA allowance allows individuals to shelter up to £20,000 a year without paying tax on interest earned – or investment returns if you choose to use a stocks and shares ISA.

But what if you have already used up your ISA allowance for the year? Are there other tax-efficient options?

What is the personal savings allowance?

The PSA allows most people in the UK to earn a certain amount of savings interest tax-free each tax year. The allowance depends on your income tax band.

Basic rate taxpayers can earn up to £1,000 interest on their non-ISA savings and for higher rate taxpayers the limit is halved to £500. Top rate taxpayers do not have a PSA.

Premium Bonds

Premium Bonds offer savers the security of a government-backed bank, tax-free returns and the hope of a bumper £1 million jackpot win each month. Instead of paying interest, Premium Bonds with National Savings and Investments (NS&I) offer the chance to win monthly cash prizes of up to £1 million.

You can own up to £50,000 worth of Premium Bonds; each bond costs £1 and you have to hold a minimum of 25.

The Premium Bonds prize rate has been falling and is currently 3.6%, but will drop to 3.3% in April. Currently, there are 2,713,707 unclaimed Premium Bonds prizes worth £114,769,950 waiting to be claimed.

If you are one of the two lucky jackpot winners of the month that has won the £1 million prize you’ll have a visit in person from NS&I's Agent Million – an individual who informs lucky winners that they have scooped the biggest prize in the monthly draw.

Of course, you could win absolutely nothing and receive zero return on your money.

Pensions

A pension is a tax efficient wrapper that you can begin paying into when you start working either in a workplace scheme or a private pension – or both. You can actually start contributing from birth using a Junior Sipp (self-invested personal pension).

Taxpayers automatically get 20% added to personal pension contributions through pension tax relief, while higher and additional rate taxpayers claim their extra relief through a self-assessment tax return.

Returns on money invested in your pension are free of capital gains tax and income tax, so your savings can grow faster. Further, you can take out up to 25% of your pension completely tax-free.

There are limits to how much you can pay into a pension each year. The annual limit is £60,000 a year for adults and £3,600 for children. However, if you’re a high earner and your income is more than £240,000 a year, the tax relief you can get on contributions is limited to a reduced annual allowance, known as the tapered annual allowance. The £60,000 annual allowance reduces by £1 for every £2 over £240,000.

However, the trade-off for these unrivalled tax breaks is that you can’t access money saved in a pension until the age of 55 – rising to 57 in 2028.

VCTs

A VCT (venture capital trust) is a type of investment that allows you to back small UK businesses. A VCT itself is a fund that invests in a basket of typically 50-80 privately owned fast-growing companies chosen by a fund manager.

You buy shares in a VCT and for every pound you invest you can get up to 30p back in tax relief. This is being reduced to 20p from April. There’s tax-free capital gains and tax-free dividends and you can invest up to £200,000 into a VCT each year. To qualify for the tax break you must hold the investment for at least five years.

There are risks of course. VCTs invest in early-stage businesses, which are much more likely to fail, and charges can be high. Investments in VCT schemes are not protected by the industry safety net, the Financial Services Compensation Scheme (FSCS).

Enterprise Investment Scheme (EIS)

The EIS is another tax efficient way to back small UK businesses. You can invest in a single company or a fund that holds a basket of around 10 firms and get income tax relief at 30%. Returns are free of capital gains tax if held for three years and you can invest up to £2 million a year in qualifying companies.

EIS investments allow you to elect for all or part of your EIS shares bought in one tax year to be treated as though they were bought in the previous tax year.

While there is a risk of investing in smaller businesses, you can claim loss relief (at your marginal tax rate) if things go wrong. There is no inheritance tax due so long as you have had the EIS investment for two years when you die.

Recent analysis from wealth management firm Rathbones found UK investors who have used up their ISA and pension allowances are increasingly turning to VCTs and EIS’s to tax-wrap their cash.

Isabella Galliers-Pratt, senior investment director at Rathbones, said: “Once they’ve used ISA and pension allowances, the next question we hear from clients is: where does my next pound go?

“As wealth increases, investors are more willing and able to take on higher levels of risk. Greater financial resilience gives them the confidence to explore opportunities beyond mainstream wrappers.”

Offshore bonds

This is an investment tax wrapper held outside the UK in which you can invest a lump sum or make regular payments. You can choose from a range of investments including funds, discretionary investment managers and bank deposits.

The income and gains of the underlying investments are not taxed within the bond – the tax charge applies when there are withdrawals.

The amount of tax you’ll have to pay will be based on your marginal rate at that time. Though income from the bond could push you into a higher rate.

The rules of offshore bonds allow you to access up to 5% of the original capital per year without any immediate tax to pay. This withdrawal allowance is cumulative so if you don’t draw 5% in the first year you own it, in the second year you could draw up to 10%. This is something to consider with the help of a financial adviser.

Other considerations:

Paying off debts

If you have any debts then it might be more financially viable to pay them off rather than worry about tax bills.

Loans, credit cards and overdrafts are almost always the most expensive kind of debt. If you don’t use any regular borrowing you could consider paying down your mortgage.

Gifting for estate planning

If you’re in the fortunate position of having used your tax allowances for the year on savings and investment vehicles you deem appropriate, and still have money you don’t need attracting tax, you may wish to consider some estate planning.

Inheritance tax is charged on an estate, which is the property, money and possessions left behind to loved ones who will pay 40% on anything above the threshold.

You can leave up to the £325,000 threshold before loved ones face a tax bill. This tax-free threshold can be increased via the residence nil rate band.

The good news is that there are plenty of measures individuals can take to reduce the amount that HM Revenue & Customs (HMRC) can claim when it eventually comes to assessing IHT.

So if you have more money than you think you might need, you could consider handing over some of your wealth while you’re still around.

The ‘annual exemption’ allows you to give financial gifts, tax-free, to the value of £3,000. You can also give £250 to any number of people every year, but you can’t combine it with your annual £3,000 exemption. You can also give away all types of assets, including cash, property and shares tax-free, as long as you live for seven years after making the gift. Known as a “potentially exempt transfer”, it must be an outright gift from which you can no longer benefit.

There is a way of giving away unlimited cash without using the seven-year rule – as long as it’s from surplus income and doesn’t reduce your standard of living or force you to dip into your capital to cover day-to-day costs.

You might also consider setting up a trust which can mitigate inheritance tax. A financial adviser can help with this and all things surrounding estate planning, as well as making a will.

Chancellor Rachel Reeves is being urged to remove stamp duty from UK-listed shares held in an ISA to help direct more money into the London stock market.

She is reportedly looking at reforming the current ISA regime in an effort to build a culture of retail investing in the UK, similar to that in the US.

Measures reportedly being considered include cutting the cash ISA limit to £10,000 per year – there’s currently an overall £20,000 annual ISA allowance. It’s suggested this change would encourage savers to put more money into stocks and shares.

Reeves is also said to be looking at changing the stocks and shares ISA, potentially adding a minimum UK shareholding requirement that could effectively force investors to put a portion of their ISA holdings into UK stocks.

Scrapping stamp duty on UK shares has also been mooted, something the investment industry has long been lobbying for.

We look at what a proposal like this could look like, and what it could mean for you.

How much stamp duty do you currently pay on shares?

In both the cash and stocks and shares ISAs, you are shielded from paying income tax or capital gains tax from the money you earn from your savings or investments.

For cash savers this means you do not have to pay tax on savings interest, and for investors it means you do not have to pay tax on investment gains.

However, ISA investors must still pay stamp duty when buying shares. Currently, you must pay 0.5% in stamp duty when you buy a share, and it usually comes as part of the overall cost of the trade.

If the chancellor got rid of stamp duty on UK shares held in ISAs, it would reduce the overall cost of gaining exposure to the UK stock market and would theoretically make retail investors more likely to invest in the UK rather than the US or other global markets.

The cost of axing stamp duty on UK shares could be minimal compared to the benefit

Rumours that Reeves is considering removing stamp duty on UK shares were welcomed by many investment companies who believe the measure is a far better way to incentivise investment in Britain than implementing a minimum UK shareholding requirement.

Instead of a top-down mandate for ISA investors to put their money into UK shares, supporters believe removing stamp duty on British stocks provides a natural incentive for investors to choose them. It is the carrot rather than the stick.

Tom Selby, director of public policy at AJ Bell, told MoneyWeek that stamp duty “explicitly disincentivises investment in British companies at a time when government policy is aimed at doing precisely the opposite”.

Nine in ten investors said they would increase their holdings in UK equities if the stamp duty on shares was scrapped, a recent survey by investment platform Tradu found, indicating there is appetite among investors.

The issue of cost will be a major factor influencing the chancellor’s decision, especially considering the upcoming Budget is likely to increase taxes.

While the cost of axing stamp duty entirely would be in the billions, just removing the tax from UK shares held in an ISA would be minimal, perhaps as little as £120 million, according to AJ Bell.

“In government spending terms, that is pretty much a rounding error and would remove a nonsensical barrier to ISA investors buying shares in UK businesses,” added Selby.

The reform also comes at a time when London’s stock market is struggling to keep pace with other major exchanges, especially in America. Getting more people to invest in London-listed stocks could mean the UK stock market would increase its competitiveness.

Brendan Callan, CEO of Tradu, said: "If we’re serious about boosting investment in UK stocks, we need to abolish the share tax altogether. Doing so could see nine in ten retail investors increase their holdings in UK equities.

“If the government truly wants to prevent the UK economy from stagnating, it must take bold, decisive action to tackle both the behavioural and financial barriers to investing, not tinker around the edges.”

Not scrapping stamp duty on UK shares could also have larger economic impacts too, investment bank Peel Hunt has warned.

Charles Hall, head of research at Peel Hunt, said in a research note seen by MoneyWeek that stamp duty is harming the UK’s competitiveness in comparison to the US.

It came after reports indicated pharmaceutical firm AstraZeneca is considering a move to the New York Stock Exchange (NYSE).

If the firm moves to the NYSE, Peel Hunt believes its investors could save around £200 million a year in stamp duty payments. If this goes ahead and other large firms follow, the UK could lose £4.5 billion in tax revenue, according to the analysis.

Hall said: “There is a global battle for capital, talent and companies. We believe losing our companies to the US due to stamp duty would be a massive own goal.”

He called on the government to respond, saying: “The obvious answer in our view is to scrap stamp duty, as it would trigger a material improvement in UK equity valuations, drive higher CGT receipts, enhance activity in UK capital markets, and increase spending power.”

On the other hand, if the current regime stays in place, Hall warns that an increasing number of firms could start to leave the London stock market.

Investec has launched its first fixed-rate cash ISA in 20 years, and is going head to head with other providers with one of the best deals as savers rush to maximise their annual allowances.

The South Africa-founded bank and wealth management group’s new one-year fixed cash ISA pays out 4.27% AER interest.

You can open the ISA with a minimum investment of £1,000.

David Hunt, head of deposits at Investec, said: “The launch of our 1-Year Fixed Rate Cash ISA is a major milestone for Investec Save as we continue to expand options for savers.

“Demand for cash ISAs is growing with a record £14 billion deposited in April this year alone and fixed-rate accounts are particularly popular as they enable savers to secure a rate for a fixed period and not have to worry about any decreases.”

We look at who can get the ISA, how it works and how it compares to other best cash ISAs.

How Investec's ISA works

Interest on the Investec account is calculated daily and paid out annually.

As it is a one year fixed account, you need to leave your money untouched for a year.

Once the ISA is opened, you’ll have seven days to pay the minimum £1,000 deposit.

You won’t be charged a fee if you close your account within 14 days of opening it and any balance plus earned interest will be transferred to your linked account. Cancel your account after this window and a fee may be deducted from your balance equal to 90 days’ interest.

The account can be opened and managed online, via Investec’s website or its app.

If you’re a new Investec customer, you’ll need the sort code and account number of your UK current account to hand as this is linked to the ISA.

While some accounts do let you transfer in ISAs, Investec’s ISA is for new accounts only.

How does Investec’s cash ISA compare to other accounts?

Investec’s new ISA is the second best one-year fixed rate ISA on the market after Vida Savings, which is offering a marginally higher interest rate of 4.28% on its one-year bond.

But it is a smaller provider and you can open the account with a smaller deposit.

Vida ISA lets you invest with a lower minimum of £100 and the bank is also covered by the Financial Services Compensation Scheme (FSCS).

How to decide what savings account is best for you

While some of the best cash ISA rates are on one year fixed deals, this account may not be suitable for you if you are looking to withdraw money from it before the 12 month period ends.

If you think you may need easy access, then an easy access cash ISA is a better option, where you can earn as much as 4.45% via Plum, for example.

But, the rate is variable and could drop if the Bank of England cuts the base rate.

You can currently add up to £20,000 into an ISA, though there are Autumn Budget rumours that chancellor Rachel Reeves may reduce this allowance for cash ISA holders in a bid to get more savers to start investing with stocks and shares ISAs instead.

Rachel Reeves is reportedly mulling a cut to the cash ISA annual allowance in a bid to encourage savers to put more of their money into the stock market.

The chancellor will deliver the Autumn Budget in the House of Commons on 26 November as she attempts to get the economy back on track.

Among some of the options she’s said to be looking at is a cutting of the cash ISA annual allowance. Currently, the overall ISA allowance is £20,000.

Earlier rumours suggested it could be cut to as low as £4,000 but more recent leaks indicate the limit may be reduced to a more generous £12,000.

However, recent polling revealed a reduction in the allowance would be an unpopular move among Brits.

Cash ISAs are the most widely used type of ISA. In the 2023/24 tax year, 66% of all ISA contributions were to cash ISAs, bringing total cash ISA holdings to £360 billion, according to government figures.

Separate Bank of England data reveals £28.75 billion was deposited into cash ISAs between April and September, up from £28.59 billion over the same six months in 2024.

A recent report put forward at the Treasury Select Committee warned Reeves that not only would cutting the cash ISA allowance discourage more of an investment culture in the UK, it would hurt Brits in other ways.

“Building societies depend on cash ISA savings as a critical funding source for their mortgage lending. If this was reduced, it would mean a less competitive market for financial products and consequently higher prices for consumers,” the report said.

Dame Meg Hillier, chair of the Treasury Select Committee, said: “This is not the right time to cut the cash ISA limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions. Without this, I fear that the chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.”

The Treasury also highlighted the government’s Leeds Reforms, announced in July, under which banks will send investment opportunities to savers with cash sitting in low-interest accounts for the first time in a bid to highlight the opportunities of investing for consumers who are able to do so.

Under current trends, moving £2,000 from these accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time, the government said.

The latest cash ISA rumour is one of several potential reforms to ISAs that could be announced in the Budget.

Earlier this year, the chancellor was reportedly considering imposing a £4,000 or £5,000 annual limit for cash ISAs. Currently, you can save or invest a total of up to £20,000 per year across different ISAs, and you don’t have to pay tax on the interest or investment returns.

The chancellor told the BBC in May she is not looking at reducing the overall ISA limit of £20,000.

In March, Reeves said she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment” in Britain.

The top cash ISA currently on the market pays 4.55% interest, but well-diversified investments have historically brought higher returns.

At a recent Investment Association dinner, City minister Lucy Rigby said: “Someone who put away £1,000 in a cash ISA every April since 1999 would now hold about £34,000. If they had instead invested in a stocks and shares ISA instead, they could now have around £83,000 – over twice as much.”

Revival of cash ISA limit plans “really disappointing”

Some critics have slammed the idea of cutting the cash ISA limit.

Andrew Gall, head of savings at the Building Societies Association (BSA), which represents 43 UK building societies and six credit unions, said it was “really disappointing that the chancellor seems only to be listening to the investment businesses who would benefit from the changes”.

Gall argued that cutting the cash ISA limit will undermine the “brilliant savings product”, make lending more expensive, and will make the ISA system more complex and expensive to administer.

"Starting to save is a crucial part of the journey to investing – undermining cash ISAs risks undermining the very investment culture that we should be trying to build on top of its strong foundations,” he said.

When rumours of a cash ISA limit first circulated earlier this year, the BSA warned building societies use cash ISA deposits to fund mortgages and said a reduction in how much can be saved in one could therefore make lending more expensive.

Kevin Mountford, co-founder of Raisin UK, believes a cut to the cash ISA limit would be a step in the wrong direction by the government.

He said: “At a time when more people than ever are paying tax on their savings interest, restricting access to tax-free cash savings could feel like a step backwards for ordinary households.”

In contrast, investing and trading platform IG said it supports a potential reduction in the cash ISA limit, arguing the product has “not only failed to improve people’s wealth but have steadily eroded it,” and adding that it is “completely incompatible with long-term wealth creation”.

Michael Healy, UK managing director at IG, said: “The chancellor is absolutely right to take aim at this outdated product – and she should go further by abolishing the cash ISA allowance altogether.

“We should not be incentivising or rewarding the hoarding of cash, particularly at a time when our stock market is teetering on the brink through lack of investment. Britain needs more people investing and more money directed towards growth, and abolishing the cash ISA is a sensible place to start.”

Just 12% of Brits are in favour of a reduction to the £20,000 cash ISA allowance, while 48% oppose the change, according to recent polling by AJ Bell.

Increases to income tax are also unpopular among Brits, with 48% saying they’re against rises.

Reeves had been reportedly weighing up raising income taxes but has now U-turned on the plans after receiving better-than-expected economic forecasts from the Office for Budget Responsibility (OBR).

Tom Selby, director of public policy, said: “With an increase to income tax rates now reportedly off the cards, voters will be wary of the raft of other potential tax-raising measures on the table ahead of the Budget.

“However, the fact a cash ISA cut comes in just as unpopular as a hike in income tax rates may give Reeves pause for thought on whether such a move is really a good idea.”

Reeves eyes stocks and shares ISA reform

On top of potential limits to the cash ISA allowance, the Financial Times reported the chancellor is also considering introducing a minimum UK shareholding requirement in the stocks and shares ISA.

If Reeves presses ahead with the proposal, British investors would effectively be forced to put a proportion of their investment portfolios into the UK stock market, eliminating the geographical freedom that is currently available in the stocks and shares ISA.

A requirement to invest a portion of ISA holdings in the UK would provide a boost to the UK stock market, and therefore help stimulate economic growth.

The plans are reminiscent of the previous Conservative government’s scrapped ‘Brit ISA’ plans, which would have allowed investment of an additional £5,000 annually in UK equities.

Reports indicate Reeves is also looking at other measures to direct more ISA holdings into the UK stock market, including a proposal to remove stamp duty from London-listed stocks held within ISAs.

When could a cash ISA limit be introduced?

As mentioned previously, if a reduction in the cash ISA limit is announced, it will likely be in the Autumn Budget.

The Budget is set to be delivered by Reeves in Parliament on 26 November at around 12:30pm. However, if a reform like this is pushed through, it's highly unlikely it will be implemented immediately.

Instead, the earliest a cash ISA limit is likely to be introduced is the start of the next tax year in April 2026.

Will I lose access to my cash already in an ISA?

It is extremely unlikely the government would make any changes to the ISA rules retrospectively. This means any cash savings you already have in an ISA are safe – the chancellor isn’t going to force you to move them into a stocks and shares ISA, or steal them away for the Treasury.

Any reforms to the ISA regime will likely come into play next April 2026 at the earliest, in line with the new tax year.

The average investment trust generated higher returns than cash in every ten-year period throughout the last decade, according to the Association of Investment Companies (AIC).

Rather than putting your savings into cash, it might be better to start investing, and investment trusts could be a particularly reliable place to start putting your money to work.

Brits have around £46 billion sitting in cash ISAs paying interest of 1.5% or less, according to data from Yorkshire Building Society. With inflation hitting 3.8% during July and August, the real value of these savings is being eroded alarmingly quickly.

The AIC analysed Morningstar data going back to 1996, and found that the average investment trust outperformed cash over every individual 10-year period during this timeframe.

It also found that the average investment trust outperformed savings accounts in 84% of three-year periods and 95% of five-year periods, as well as 100% of ten-year periods.

^{Source: The AIC / Morningstar}

“Since 1996, there hasn’t been a single ten-year period in which the average investment trust has done worse than cash,” said Nick Britton, research director at the AIC. “The best ten-year return for trusts in that period is 217% and the worst is 55%, which is still better than the best ten-year return for cash of 39%.”

Britton highlighted that past performance is not a guide to future performance and that over shorter time periods, it becomes less likely that investment trusts would outperform cash. Investment trusts beat cash in two out of three one-year periods over the past 30 years.

“Investment trusts should be considered by those who can invest for at least five years, and preferably ten or longer,” he added.

Investing in equities over cash

The problem with holding your savings in cash is that, while you’ll generate a predictable return, this return will be fixed. Increases in inflation can quickly start to eat into the long-term value of cash savings.

Investing in the stock market, on the other hand, increases your risk in the short term, but over the long term it gives you a better chance of generating above-inflation returns. That’s because, while the global stock market has its ups and downs, it tends to grow over time and to do so at a rate that beats inflation.

“Investing in the stock market is often seen as risky but over the long term, it has protected savings from inflation a lot more effectively than cash,” said Britton.

It is important to have a cash buffer to cover unexpected costs, and the predictability of cash means that this is the best place to hold this buffer; you don’t want to find yourself forced to dip into your investments while the market is enduring a downturn.

“Exactly how much emergency cash saving you need will depend on your personal circumstances,” said Claire Exley, head of financial advice and guidance at Nutmeg. “Think about your fixed bills, do you have dependents, how easy would it be for you to get another job if you needed to? As a starting point, we would usually suggest having between three and six months’ essential spending saved in an account you can easily access.”

Beyond this, though, it is worth considering putting your money to work in the stock market.

“Investing will usually allow your money to work harder than it would in cash savings,” said Exley. “Historical data tells us that over the long term, investments deliver better returns than cash savings.”

Why buy an investment trust?

An investment trust offers certain advantages over other forms of investment fund, though it should be noted that any investment should be made with consideration to your individual goals and circumstances.

They are closed-ended funds which means that they have a fixed number of shares which trade independently of changes in the value of the assets they hold (their net asset value, or ‘NAV’).

While that means investment trusts can trade at a discount to their NAV, it also makes them a superior vehicle for investing in long-term, illiquid areas such as infrastructure projects. Investment trust managers, unlike those of open-ended funds, will never be forced to sell their assets at a discount in order to meet investor redemptions.

Investment trusts can also borrow money to amplify their returns (known as gearing), and unlike other types of funds they can reserve up to 15% of their capital every year.

This allows them to smooth out dividend payments and maintain them during tougher years, making them potentially more reliable as a source of income. Anyone considering switching from cash to investing might find this reliability of income reassuring.

If you’re new to investment trusts and looking for inspiration to get started, read our explainer on the best investment trusts for beginners.

Britain’s biggest investment platform, Hargreaves Lansdown, has launched its first-ever cash ISA product, offering customers the ability to save up to £1 million in a single cash product.

The new easy-access cash ISA, launched in partnership with challenger bank Shawbrook, will initially pay a variable interest rate of 3.45%.

Its interest rate will never go more than 65 basis points below the Bank of England’s base rate, meaning the product is set to occupy a competitive place in the ISA market.

While this guarantee does not necessarily mean the account will be among the highest-paying cash ISAs, it does mean savers are unlikely to be stung by the poorest rates available.

Mark Hicks, head of active savings at Hargreaves Lansdown, said the account will offer clients a “consistently competitive savings rate”.

The savings will be held by Shawbrook Bank and will be protected by the Financial ­Services Compensation Scheme (FSCS), which protects up to £85,000 per person, per bank, building society or credit union. Hargreaves Lansdown will directly control the interest rate offered to customers.

How does Hargreaves Lansdown’s cash ISA compare to others on the market?

What differentiates Hargreaves Lansdown’s new cash ISA from the many other options already on the market is its guarantee to never pay an interest rate more than 65 basis points below the Bank of England base rate.

At present, the base rate stands at 4% after the Bank of England’s Monetary Policy Committee (MPC) decided against an additional interest rate cut amid high inflation.

With the base rate at this level, the lowest possible interest rate that Hargreaves Lansdown can offer on their new cash ISA right now is 3.35%, though this minimum level will change in line with shifts to the base rate.

However, Hargreaves Lansdown’s 3.45% interest rate is far from the best available rate on the market at the moment.

The top easy-access cash ISA rate is almost a full percentage point higher at 4.38%, offered by Trading 212.

The rate offered is certainly not poor, being significantly higher than the average no notice cash ISA rate of 2.77%, according to Moneyfacts.

Hargreaves Lansdown already offers customers the ability to save in cash ISAs paying up to 4% interest on their platform through other banks, but the new product is the first to be done directly through Hargreaves Lansdown.

Hicks said: “While clients will be able to access better rates on our savings platform on an individual bank basis, this product will provide consistency and diversification benefits to savers who don’t want to have to continually switch products around to generate a competitive rate.”

He added: “Cash ISA providers often pay bonus rates to attract clients, but these rates expire, leaving them with a longer-term, lower rate. [The new product] will allow us to accelerate the growth of our platform, provide better client outcomes and give savers greater choice from a brand they trust.”

Cash ISA savers can get up to £500 cashback as part of a new switching incentive from Barclays, but there is a catch.

The bank appears to have kicked off ISA season early by aiming to tempt savers with an attractive cashback deal.

You could get up to £500 cashback by transferring your cash ISA to Barclays.

But there is a big caveat. You will only get the full £500 if you transfer £100,000 or more.

Here is how Barclays’ ISA transfer cashback offer works.

What is Barclays ISA transfer cashback offer?

Savers could get up to £500 cashback by transferring their cash ISA to Barclays.

There are a few requirements though.

You will need to have a Barclays current account for the money to be sent to and be over 18. Accounts must be opened by 28 November to be eligible for the reward.

The transfer can be made into a new or existing Barclays cash ISA either through the ISA transfer service in the Barclays app or via online banking.

The money can also come from multiple accounts but Lifetime ISAs, Help to Buy ISAs and other Barclays ISAs are excluded.

Once the transfer is complete, the cash will be sent to the current account within 60 business days after 28 November 2025.

However, while £500 looks like an attractive sum, and is higher than any cashback deal for current account switching, the amount you'll get actually depends on the ISA balance you transfer in.

How much cashback can you get when transferring a cash ISA to Barclays?

The more you transfer, the more cashback you will earn. There is a £100 reward for those transferring between £25,000 and £49,999.99.

This rises to £200 for those moving £50,000 to £99.999.99.

You will only get the full £500 if you transfer £100,000 or more.

What cash ISA rates does Barclays offer?

Barclays has a range of easy access and fixed rate ISAs.

Its best rate is a 4% one-year fixed rate cash ISA but it is only available for premier and wealth management clients.

This is only available to those with a gross annual income of at least £75,000 and at least £100,000 of savings or investments with the bank.

Alternatively, Barclays has a one-year fixed rate cash ISA at 3.7% for all customers.

It is important to shop around and not just chase the cashback though.

Savers could earn more interest on a cash ISA with other providers.

Trading 212 offers 4.38% on its cash ISA, while Plum has a product at 4.37%.

Cashback rewards are also higher for those investing through a stocks and shares ISA, rather than keeping their money in cash.

For example, Charles Stanley offers up to £1,500 cashback on stocks and shares ISA transfers.

You would need to transfer £100,000 to get at least £1,000 back, which is more than the Barclays cash ISA offers, plus the returns from the stock market could be higher over the long-term.

Savers rushed into cash ISAs last year to take advantage of some of the highest interest rates on the market for savings since the financial crisis, according to latest government figures.

Cash ISA subscriptions grew by 67% – a jump of £27.9 billion – in the 2023/24 tax year, HMRC’s data showed. This took the total ploughed into cash ISAs for the year to £69.5 billion.

By comparison, money invested in stock and shares ISA rose by a much more modest 11% – amounting to £3.1 billion – totalling £31.1 billion.

These figures don’t reflect the dash-to-cash ISA ‘stuffing’ in early 2024/25. This is when rumours swirled that chancellor Rachel Reeves might slash the cash ISA allowance ahead of the Spring Statement, with some suggestions the limit could go as low as £5,000. Billions were hurriedly parked into cash at that time, and the next HMRC release is likely to show another surge in cash ISA take-up.

Instead the surge in 2023/24 was down to a higher Bank of England base rate pushing up the interest rates on offer for cash ISAs.

Jason Hollands, managing director of investment platform Bestinvest, said: “Over 9.9 million people subscribed to cash ISAs in 2023/24, the highest number in eight years. It’s unsurprising this was the case given UK interest rates climbed to 5.25% during that year, their highest level since 2008.”

Rachael Griffin, tax and financial planning expert at Quilter, said higher interest rates have “clearly made cash ISAs more appealing”, offering returns not seen for over a decade. But she added this is a “temporary reprieve”.

“Rates have already started to drift lower and, with the Bank of England expected to hold today before eventually cutting, the generous cash deals of the past year are unlikely to last,” she said.

Cuts to cash savings rates

The Bank of England Base Rate cut last month to 4% has resulted in a cascade of savings rate cuts, according to Moneyfacts analysis, with rates steadily trending downwards since the Bank began lowering rates in August 2024.

Since the start of August 2025, the average easy access savings rate has fallen by 0.08%, from 2.68% to 2.60% and the average easy access ISA rate fell by 0.08% from 2.90% to 2.82%.

The Moneyfacts average savings rate fell to 3.46% in September, down from 3.5% month-on-month. It is down from 3.8% since September 2024, and lower than 4.29% in September 2023. The rate was last above 4% in January 2024 (4.04%).

Rachel Springall, finance expert at Moneyfacts, said: “Savers pay the price of cuts to the Bank of England Base Rate, and the 0.25% reduction in August has been no exception. Overall, savings rates continue on the downward trend.”

How does inflation affect cash savings?

Savers need to remember that cash provides short-term safety but long-term stagnation, Quilter’s Griffin said.

This is because, where cash rates don’t keep up with the rate of inflation – currently 3.8%, nearly double the Bank of England’s 2% target – its value is being silently eaten away so it is worth less over time.

“Inflation will steadily erode the value of money left sitting in cash, whereas investments stand a far better chance of beating inflation and growing wealth in real terms,” Griffin explained.

However, ISAs will still be sought after by savers looking to protect their pot from tax, regardless of rate cuts. There will be many savers impacted by fiscal drag, and as a result, basic rate taxpayers who edge up into the higher-rate tax bracket at 40% will have their Personal Savings Allowance (PSA) halved from £1,000 to £500.

“This will just add fuel to the fire for demand in ISAs, yet the future of the cash ISA allowance remains up in the air as rumours continue to circulate for a review in the upcoming Budget,” said Springall.

Could the cash ISA limit be cut?

For now, it seems, the chancellor’s plans to cut the Cash ISA allowance have been put on ‘pause’ but that does not mean reform of ISAs is off-the-table completely for the remainder of this parliament.

Hollands said: “It should be noted that several alumni of the Resolution Foundation, a think tank which has previously advocated capping ISAs to £100k per person, are now in influential positions in the government.

“ISAs should not be taken for granted given the increasingly painful tax burden in the UK, with much diminished annual exemptions for capital gains and dividends, and higher rates of CGT introduced at last year’s Budget,” he said.

As the tax environment is only likely to toughen in the near term given the hole in the public finances, those able to make use of ISAs to protect wealth from taxation should do so as fully as possible, Hollands added.

British savers stashed more than £2 billion more into cash ISAs over the last three months compared to the year before, data from the Bank of England shows.

A reduction to the cash ISA limit was widely rumoured to be on the cards in the run-up to chancellor Rachel Reeves’s Mansion House speech on 15 July. Advocates of the policy hoped that cutting the cash ISA limit, perhaps to as low as £4,000, could incentivise Brits to invest more into stocks and shares instead, in an effort to revive London’s struggling stock market.

Reeves announced that she wants to boost the UK’s investing culture at the speech, but no reforms to the cash ISA limit were announced, as had been expected.

Savers deposited £21.5 billion into cash ISAs in the three months from April to June 2025 – £2.2 billion more than during the equivalent period the previous year – according to data from the Bank of England’s (BoE) latest Money and Credit report. It suggests Brits were concerned about the potential reforms.

“With talk of slashing the annual cash ISA limit from £20,000 to £4,000, people have been rushing to use their allowances while they still can,” said Adam French, head of news at Moneyfactscompare.co.uk.

How much did UK savers put into cash ISAs?

The first three months of this financial year saw a marked increase in cash ISA deposits, with most of the uplift on the previous year coming in the first month.

Savers deposited £14 billion in cash ISAs this April – which unsurprisingly sees the highest level of contributions as ISA early birds get ahead in the new tax year – up from £11.7 billion in April 2024.

^{Source: Moneyfacts.co.uk, Bank of England}

May 2025 actually saw a slight fall to £3.9 billion from £4.2 billion in 2024, but June 2025 saw an uptick to £3.6 billion from £3.4 billion.

More broadly, household deposits with banks and building societies increased by £7.8 billion in June compared to May, according to the BoE’s Money and Credit report.

“More savers are recognising the importance of protecting their cash pots from tax,” said Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners. “While June’s uncertainty in the domestic and global economy may have encouraged some savers to top up their savings to protect their finances, others may have been trying to capitalise on higher savings rates while they were still around.”

Could the cash ISA limit be lowered in future?

While the rumoured cash ISA cut has been delayed for now, it may not be off the cards over the longer term, with Reeves suggesting that she wants to spend longer consulting with the industry before making any changes.

“An overhaul of the UK's ISA system is still on the cards,” said French. “If the Government’s aim is to nudge more people towards long-term investment, this reaction shows the challenge ahead.

“You can’t simply cut the cash ISA limit and expect that money to flood into stocks and shares instead,” French added. “The solution isn’t cutting allowances but greater innovation and shifting focus towards financial education and support.”

There are contrasting views on the role of cash ISAs and how (as well as if) they should be reformed to encourage investment.

“Cash ISAs are popular,” said Andrew Gall, head of savings and economics at the Building Societies Association in Interest, Moneyfacts’ magazine. “They are used by savers for a broad range of practical purposes, from building financial resilience to saving for a first home to managing finances in retirement.”

Gall advocates maintaining the cash ISA limit and launching a public awareness campaign to help beginner investors get started.

But Richard Stone, CEO of the Association of Investment Companies, thinks cash ISAs and stocks and shares ISAs should be merged, with ISAs only offering cash options having lower contribution limits. He also agrees that a healthier investing culture should be fostered, with the help of a public education campaign.

Are you looking for new ways to save for the medium to long term beyond obvious options such as individual savings accounts (ISAs) and private pensions? If you work for one of the 1,000-plus employers in the UK that offers an employee share scheme, joining it could make sense. These schemes, which must be aimed at all employees (not just top executives), can even be combined with ISAs to maximise tax efficiency.

There are two options here. The simplest scheme is a save-as-you-earn (SAYE) plan, sometimes known as Sharesave. You save up to £500 each month into the scheme’s nominated savings account, typically for three to five years; the money usually attracts a fixed rate of interest, and some schemes offer a tax-free bonus at the end of the plan. At this stage, you can invest your savings into shares in your employer at a price agreed before the plan began. This price can be set at a discount of up to 20% of the share price at the start of the scheme.

Minimal risk with SAYE schemes

If your employer’s share price is higher than this “strike price” when you’re ready to buy, you’re sitting on an instant windfall; you can use your savings to buy the shares and then sell at an immediate profit, or hold on in the hope of further gains. Alternatively, if your employer’s shares have fallen since the scheme began, making the strike price look expensive, you can simply ask for your cash back.

SAYE schemes, then, are more or less risk-free. Your cash savings may lose value in real terms if you can’t cash them in at a profit – if inflation outstrips your interest income – but there’s no potential for them to drop in nominal value. If you leave your employer before the scheme reaches maturity, you normally get your cash back in full.

Share-incentive plans (SIPs)

The alternative, favoured by some employers, is a share-incentive plan (SIP). In a SIP, you can invest up to £1,800 a year in shares in your employer, with the money coming out of your salary before income tax and national insurance are deducted; that’s effectively tax relief on your investment, although you must hold the shares for at least five years to retain this advantage. After five years, you can sell up; profits are potentially subject to capital-gains tax, but only gains accrued after the five-year period count towards this calculation. The exact terms of your SIP will depend on your employer. Some companies offer free matching shares in line with your contribution; they’re allowed to give you stock worth up to £3,600 a year. And some run dividend reinvestment schemes, enabling you to use the dividends paid on the shares you’ve bought to make further investments. There is more of a risk with a SIP. You’re investing in shares that may fall as well as rise. But the up-front tax perks ease this risk somewhat – and if you qualify for free matching shares, that will also make a difference.

SAYE plans, SIPs and ISAs

Finally, don’t overlook the potential to use ISAs alongside these schemes. With both SAYE plans and SIPs, you have 90 days to transfer your shares into an ISA at the end of the scheme’s term; this will ensure any subsequent income and profits are sheltered from tax. But the value of the transfer does count towards your £20,000 ISA allowance in the year you move the investments.

One last question to consider with employee share plans is whether you’re at risk of becoming too dependent on your employer (relying on it for both your earnings and your investment growth) – although diversifying your investment portfolio through other holdings will certainly help.

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Poor Rachel Reeves. She doesn’t seem to get much right – and even when she does things still seem to go wrong (see welfare reform). And so it is with her perfectly sensible thoughts on cash ISAs. All UK adults get a £20,000 ISA allowance – which they can pop into a tax-free wrapper and either hold in cash or invest in the equity or bond markets. More than 7.8 million people have cash ISAs, around double the number who use the wrapper for investing.

Reeves had been planning to change the allowance such that a maximum of £4,000 or £5,000 could be kept in cash, with the rest having to be invested. Her public thinking was simple: over the long term, the stock market provides very significantly better returns than cash – and it makes sense for as many people as possible to take advantage of those returns. History firmly backs her up on this: in the last ten years the UK’s passion for cash ISAs has, says Schroders’ Duncan Lamont, left households more than £500 billion worse off than had they invested in global equities.

The stock market has beaten cash in the long run, but also has “a better... record of doing so over every reasonable investment horizon”. It has also kept you constantly safe from inflation in a way that cash simply hasn’t: “there have been no 20-year periods in our analysis when stocks lost money in inflation-adjusted terms”. This is not to say that people don’t need to hold some cash. They need around six months’ worth of household expenses.

Most people won’t need an ISA at all for that. Lower-rate taxpayers already have an annual tax-free allowance of £1,000 on income from savings. That’s roughly the income from £22,000 of cash at current interest rates, an amount that makes sense as an easy-access emergency fund for most people (the average value of an ISA in the UK comes in at around £30,000). Look at it like that, and it is hard to see the value to the taxpayer (the tax revenue forgone from the ISA system comes to over £6 billion a year), or to the average saver from putting a full £20,000 allowance into cash every year. By the time you have that much, you should be investing anyway. The “fetishisation of cash” has to stop, says Lamont.

Rachel Reeves should revive the idea of the Brit ISA

It makes sense, then, in terms of personal wealth alone, that Reeves should want to nudge savers into the stock market. But there are a few public goods attached to the idea as well. Firstly, people with more wealth will require less in the way of state handouts the UK clearly can’t afford anymore. And secondly, if less money is going into cash accounts, more might go into British equities. It really needs a little support – support that might as well come from ISA accounts supported by the taxpayer.

The truth is that if Reeves was brave, she’d not just cut the cash component of ISAs down to size (or completely). She would also revive the idea of the Brit ISA and insist that those who want the full annual allowance should be obliged to put a good 50% of it (maybe more) into the UK market. If you are getting tax relief on your investments, as my Bloomberg colleague John Stepek points out, “it makes sense for some of that to be benefiting and driving down the cost of capital for domestically listed companies and boosting the UK’s capital markets infrastructure, rather than getting pumped into the S&P 500”. The precursor to the ISA – the PEP – had a restriction along these lines, so the idea is hardly a modern madness.

Not everyone is on board with much of this (or poor Reeves wouldn’t be needing more time to consult on it). Horrified savers, presumably the ones who don’t read Lamont’s work) poured a stunning £14 billion into cash ISAs in April. Imagine what that kind of money could have done for the UK economy if put to productive use. Meanwhile, the building societies, who provide a lot of the cash ISA accounts and effectively use them as a cheap form of funding for mortgages, have been pretty vocal in their opposition too. Slashing the allowance would be all stick and no carrot, says Matthew Carter of the Coventry Building Society, penalising savers for keeping cash “and nudging them towards taking more risk with their money”. As an aside, note that Coventry is offering instant-access cash ISAs with an interest rate of 2.4%, just under half the best rate on the market. Maybe he’s missing the point on purpose?

There is an argument that cutting the cash allowance would make no difference to the amount invested. AJ Bell’s research suggests that only 20% of cash ISA holders would consider investing if the allowance was cut, and 50% would simply save the same amount into a taxable account instead. Martin Lewis of MoneySavingExpert worries about this too. He would like to see – chucked into an already overly long list of different types of ISA – something he calls a “Starter Investment ISA”.

The people who might have used a cash ISA in the past would put “say, up to £1,000 in... and as well as it being tax-free, you’ll get, for example, a 5% boost on contributions from the state (with the cost split between investment providers and the state) as long as the money is kept in investments for a set time (such as one year)”. The bung from the taxpayer would, he says, be a “sweetener”. It would be more of a pointless (and expensive) complication. The sweetener is already built into ISAs in the form of tax-free capital gains and dividends. Many say we need more education about how investment works. That’s true (and Lewis could do a lot here). But what is needed even more than education is action. Let’s say goodbye to the mostly pointless and always expensive cash ISA.

Tickets are now on sale for my Adam Smith-themed show. The Butcher, The Brewer, The Baker and Merryn Somerset Webb at the Edinburgh Festival Fringe from 22-24 August. Tickets from Panmurehouse.org

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Mortgage and loan providers have rallied together to urge the chancellor to leave the cash ISA limit unchanged at £20,000, saying a reduction would make lending more difficult and expensive.

In an open letter, the Building Societies Association (BSA) wrote to Rachel Reeves to express their “concern” over rumours that the cash ISA limit could be reduced.

It said that while cash ISAs form a key part of an individual's savings as a place to let their cash grow tax-free, deposits stored in them are also an “an important source of funding for banks, building societies, credit unions and other providers”.

These financial institutions then use the deposits to fund loans to households and businesses, with the BSA saying that cash ISAs help keep mortgages and loans “affordable and accessible”.

The association warns that a big cut in the cash ISA limit could therefore “lead to higher borrowing costs and reduced access to credit across the economy”.

“This would undermine efforts to stimulate economic growth, including the government’s commitment to delivering 1.5 million new homes,” it added.

The BSA also warned that a lower cash ISA allowance would send a discouraging message to savers who are using it to plan for the future, as well as “undermining a product that has stood the test of time”.

Since the start of the year, speculation has been mounting over whether or not the chancellor will reduce the amount of your tax-free ISA allowance that you can direct towards cash savings.

Reports suggest that Reeves and her team in the Treasury have been exploring the idea of reducing the cash ISA limit to as low as £4,000 to incentivise Brits to put their ISA savings into the stock market.

The move would come at a time when UK plc is feeling unloved, and the London Stock Exchange is struggling to keep up with its American cousins.

While the Treasury has neither confirmed nor denied that the cash ISA limit will be reduced, the chancellor said earlier this year that she wanted to encourage a “culture of investing” in Britain, like there is in the United States.

Reeves also told the media that she wanted to “get the balance right between cash and equities to earn better returns for savers” in their ISAs.

Reeves could announce reforms to the cash ISA at her Mansion House address on 15 July.

Will reducing the cash ISA limit make it more difficult to buy a home?

As outlined in the open letter, the BSA argues that a reduction in the cash ISA limit will lead to fewer deposits being made with lenders. With fewer deposits, the building societies argue that they will find it more difficult to provide loans and mortgages as they will have less money to give out.

Chris Irwin, director of savings at Yorkshire Building Society, supports this point, telling MoneyWeek that combined cash ISA balances in the UK amount to more than £300 billion and that a reduction to the cash ISA limit would lead to “significant wider impacts”.

Irwin says many financial institutions use cash ISA deposits to fund mortgages and loans to households and businesses.

“Cash ISA deposits underpin the UK mortgage market and represent a direct investment in the UK economy. Reducing ISA deposits could make mortgages more expensive and less available.”

Irwin adds that cash ISAs make up 39% of all building societies’ retail savings balances, providing a “vital source of funding to allow us to offer more mortgages to those that need them”.

With such a large proportion of deposits being held in the tax-free savings products, a reduction in the limit could severely restrict lending activities.

He also warns that a reduction in the cash ISA allowance will jeopardise the government’s headline ambition to build 1.5 million new homes as “cutting ISA limits could make that more difficult and have a significant impact on economic activity.”

Cecilia Mourain, chief homebuying and savings officer at the savings and investing app Moneybox, agrees that a cut to the cash ISA allowance would be the wrong move by the government.

Mourain argues that the move will “discourage sensible saving behaviour, weaken demand for a popular product and disrupt the flow of capital that supports mortgage lending and economic stability”.

Moreover, Mourain says that such a reform would not support the government’s ambition to build a stronger investing culture.

“We know that a cultural shift towards investing won’t come from cutting the cash ISA allowance, it will come from working with the industry to build confidence among savers,” she adds.

Savers have been left in limbo for months – is the cash ISA staying, going or simply subject to a tweak?

It is widely reported, but not confirmed by the Treasury, that we can expect the future of the cash ISA to be sealed at the Mansion House speech on 15 July.

Chancellor Rachel Reeves is expected to limit the amount you can put into cash ISAs to £5,000 instead of £20,000. The fear has already prompted savers to stuff more into cash ISAs in a bid to maximise tax-free cash savings while they can.

Should the £5,000 cash ISA limit be introduced in future, you will have to put more money into a stocks and shares ISA to shield your savings from the taxman. The annual limit on stocks and shares ISAs is expected to remain at £20,000.

While the UK government appears to be in turmoil with a series of U-turns on policies, it now seems as though Reeves could be crumbling. Whether she will continue as chancellor remains to be seen, but whatever happens, it's important ISA changes are played out carefully.

Should Rachel Reeves cut the ISA limit?

In recent weeks, there's been tremendous noise from the industry – all pointing in the direction that pushes savers into investing.

If there is a cash ISA allowance cut, then the agenda to push investing to the public really needs to be part of a huge campaign that informs, educates and builds confidence.

People don't invest because they do not understand it – nor do they trust it. The firms that provide stocks and shares ISAs are not common household names; let’s face it, Brits like a bit of familiarity.

If Reeves, or whoever prime minister Keir Starmer decides should be his right-hand person going forward, decides to make a huge push to convert savers into investors, then the noise around it has to be big, otherwise Reeves will have failed at her attempt to boost the economy by getting more investment in the UK markets.

While it’s highly recommended to hold an emergency savings pot which can cover essentials for around three to six months, cash savers on average hold around £10,000, according to the Financial Conduct Authority (FCA).

Data from RetailBook, which helps investors navigate the complexities of capital markets, suggest someone who invested £10,000 in the UK from 1 September 1986 to 21 December 2024 would now have £2,301,831. But, if they held it in cash for the same period, they would have £617,178.

RetailBook is currently campaigning for more savers to invest and in particular, via UK capital markets with a GetInvested campaign, adding its voice to get savers to recognise what it means to invest.

The FCA’s review for targeted support, dubbed as a once in a generation advice change, could help facilitate the government’s push to investing.

But will this be enough? How much education would it really take to get people to understand that investing isn't a legal form of gambling. The lack of understanding is deep, embedded in our culture.

Reeves has her work cut out. Any cut to the cash ISAs is simply going to be unwelcome and be seen as a way of removing tax benefits for the vulnerable while handing it over to those who have the confidence to enjoy the riches that come from investing.

She should also take into account that investing is a long term game. Not everyone will be in a position to invest. Should sensible savers keeping their money in cash for short-term goals be penalised?

If city bosses want investments to come to them, then get involved and help campaign for a better financial future. Change your game because we are still stuck in an era that gives the message that investing is an elite club. We need cultural change at every level.

Holding back the tears

Reeves was seen holding back the tears in what looked like a very emotional appearance in the commons during Prime Minister’s Questions this week. It was reportedly due to personal reasons.

The once confident chancellor who stood up delivering the Autumn Budget in October, insisting her policies were necessary to plug the £22 billion fiscal hole left by the Conservatives, seemed broken when Starmer didn't appear to give her the reassurance she needed.

It wasn't easy watching. I don’t think it’s easy being Reeves right now.

With stories coming out each day about how her policies are seemingly damaging individuals and businesses, Labour’s U-turns seem to have become common practice and costly.

It’s the backtracking over winter fuel payments and welfare benefits that will have caused Reeves the most humiliation.

I wholly support the push to invest, but I don't believe that those who choose not to should pay a higher price for doing the right thing – saving their money.

But, with backlash and humiliation likely rattling Reeves’ nerves, making any cut or changes to the much-loved cash ISA is going to be one tough decision. Will Reeves make it?

Savers paid another £14 billion into cash ISAs in April, according to Bank of England data, the highest amount since the savings products were launched in 1999.

Easy access cash ISAs have been the biggest beneficiaries of this rush, with savers attracted by the high headline rates and the bonus rates on offer. The best cash ISAs are currently returning inflation-busting rates of up to 5.46%.

However, the Bank of England's interest rate cut means rates on savings accounts could soon drop.

Savers have been grown worried by pronouncements by chancellor Rachel Reeves that she wants to reform ISAs to get more people investing in stocks and shares and less in cash.

This has raised concerns the cash ISA limit could be slashed to as low as £4,000. Currently savers can use all of their £20,000 ISA allowance for cash savings if they wish.

Andrew Wright, head of savings at Paragon Bank, said limiting cash in ISAs in future years “would be a mistake and undermines confidence in one of the UK’s financial services success stories; ISAs have made a tangible difference to people’s savings”.

He added: “Our research suggests that savers wouldn’t direct funds into equities if the ISA cash threshold was cut, but would shift their savings to non-ISA accounts, which is effectively a stealth tax if it means they breach their personal savings allowance.”

Are you unsure which ISA is best for you? A stocks and shares ISA is a good option for long-term savings, but a cash ISA may make good sense in the short term.

Mark Hicks, head of active savings at wealth firm Hargreaves Lansdown, said: “Higher rates and rumbling discussions about the future of the cash ISA pushed tax-saving to the top of the to-do list.

“The level of withdrawals from easy access savings seems to indicate a significant proportion of ISA savings has come from people withdrawing from savings accounts and ploughing the money into their ISA equivalents at either end of the tax year, to take advantage of the tax saving,” he added.

Savers withdrew £11.5 billion from easy access accounts paying interest in April, and £6.3 billion from easy access accounts paying no interest in the same month.

When will savings rates fall?

As competition heated up over tax year end, rates remained elevated, but they have fallen since.

The average rate on new fixed savings accounts rose by 0.07% to 4.02%, and the average easy access account rate fell from 2.01% to 1.99%. That covers everything classed as ‘deposits by individuals’ – so cash ISAs and savings accounts.

“Easy access rates are much more sensitive to base rate cuts, so while fixed terms may not have quite the same headline rate, as easy access deals have gotten less generous and fixed term rates have continued to rise, the gap has been closing,” said Hicks.

Savings rate cuts are likely to slow, and longer fixed terms may well rise, especially if concerns about inflation around the world remain higher and gilt yields stay elevated, he added.

“If inflation is super-sticky, we could see the market become less convinced about rate cuts, which would mean strong savings rates are around for longer.”

The best rates tend to be available from online banks and savings platforms, Hicks pointed out, so it’s worth shopping around and switching to make the most of the deals around.

However he said the level of uncertainty around right now makes forecasting more difficult, “so it’s important to find the right balance between fixed and easy access savings for your own needs – rather than trying to second guess what happens next in the world economy”.

Do you think you may have a ‘lost’ pension pot somewhere from years ago? You’re not alone. Calls to the government’s Pension Tracing Service have risen 58% over the last year, as more Brits try to track down their lost money.

The number of calls to the Pension Tracing Service from savers looking to find old or ‘lost’ pensions jumped to 68,709 in the 12 months to 30 September 2025, up from 43,614 in the same period the year before, according to a Freedom of Information request by accountancy and wealth management business Lubbock Fine.

Andrew Tricker, director of Lubbock Fine Wealth Management, said the increase indicates more people are looking to trace their pensions in order to maximise their retirement savings, in the face of higher living costs. More than 993,000 people have used the government’s free Pensions Tracing Service since May 2024, via a mixture of online searches and telephone calls.

“People are increasingly taking the initiative to trace their pension pots, as evidenced by the sharp rise in calls to the Pension Tracing Service over the past year,” Tricker said.

"For someone who has had multiple jobs over the last decade the potential to lose pensions worth tens of thousands of pounds increases. Pension tracing and consolidation offers significant benefits, such as lower fees, simpler management and more efficient investment,” he added.

Millions of pension savers potentially missing out

Millions of pension savers are at risk of missing out on crucial retirement income by not tracking down lost pensions worth thousands of pounds, according to research.

Less than a third (30%) of UK adults have kept track of all their pension pots from previous jobs, a 2025 survey by Standard Life showed.

Meanwhile, three in five (60%) have never consolidated their pension savings, while two thirds (66%) have not tried to track down lost pots – despite the average pot being worth £9,470.

A quarter (24%) are unaware that changing employers can land you with multiple pension pots while one in four UK adults (26%) don’t know who their current pension provider is.

Mike Ambery, retirement and savings director at Standard Life, part of Phoenix Group, said: “Millions of people risk losing out on valuable retirement savings simply because they’ve lost track of their pensions.

“With multiple job moves now the norm, it’s easy for pots to slip through the cracks.

“While tracking pots down may seem like a hard task, there are simple steps you can take to get your pots in order.

“Even if consolidation isn’t the right option for everyone, simply knowing where your pensions are and keeping a record can make a real difference.”

In this guide, we explain how to find lost pensions, as well as savings and investments.

Do I have a lost pension?

Considering the average person has 11 jobs in their lifetime, it’s little wonder we lose track of individual pots, particularly if the time spent working for the firm was fleeting.

Lisa Picardo, chief business officer UK at PensionBee, said: “It is unsurprisingly quite common to lose track of a pension, and our own research shows that nearly one in five UK adults believe they have lost a pension pot, equating to around 8.8 million people.

“If you are enrolled into a pension scheme at work and then leave that job, your pension does not move with you. A new pot is created at your next employer, and unless you take steps to consolidate or keep records, it is easy to forget where your savings are held.”

People also lose track of pensions because their provider changes its name, moves its communications online or sends letters to an old address.

Thousands of people are trying to track down old pensions. The government’s Pension Tracing Service received 273,709 calls between 1 January 2021 and 29 September 2025, according to a Freedom of Information request by wealth firm Hargreaves Lansdown.

The number would be even higher except for the fact the Pension Tracing Service was merged with another Department for Work and Pensions helpline between 25 May and 27 October 2024.

Research from the Pensions Policy Institute estimates there are 3.3 million lost pension pots. “This is all money that can make a significant improvement to people’s lifestyles in retirement and could be the difference between struggling to make ends meet and being able to enjoy your golden years,” said Helen Morrissey, retirement expert at Hargreaves Lansdown.

Since the advent of auto-enrolment which was rolled out between 2012 and 2018, anyone aged 22 and over earning £10,000 or more will be automatically added to the company pension scheme when joining the company.

This makes it easier to forget you’ve been building up retirement savings.

The good news is that your money remains invested and can continue to grow, depending on stock market conditions, even after you leave a company.

How do I find lost pensions?

You can track down your old pensions by contacting past employers to find out who the pension provider is and then calling or emailing the provider directly to enquire after your retirement savings.

You will usually need your National Insurance number and details of when you worked there to help them track you down.

Or, you can use the government’s free Pension Tracing Service.

For this you’ll need to input details of the employer who set up the pension. You’ll then be given the name, address and telephone number of the provider who operates their scheme so you can get in touch directly.

Alternatively, you can use a free tracing service such as Gretel which has around 3,500 companies spanning the pensions, investments and savings sectors. If your provider is one of those registered, by entering your name, address and date of birth you can find out in minutes if you have a lost pension and where it is.

Morrissey said: “Make a list of everywhere you have worked and check to see if you have pension paperwork for them. If you don’t, and you suspect you had a pension with them, then give the Pension Tracing Helpline a call.”

Once you’ve tracked down your pensions, you may wish to consolidate them into one place. This can save you time, admin and even cost.

Morrissey said: “It’s important to compare your old provider with what your new one can offer you. What are the fees like? What kind of investment choice is on offer and what support is available to you?

“But having one overarching view of what you have can transform your retirement planning as you will view one larger pension in a different way to several small ones which you may be tempted to cash in and spend.”

However, before you take the plunge, it’s really important to check that you won’t be incurring expensive exit fees by transferring out.

Another thing to be careful of is the potential to miss out on important benefits such as guaranteed annuity rates, which could be lost if the pension is transferred. It also rarely makes sense to transfer out of a final salary pension.

How to avoid forgetting about lost pensions

Here are some steps you can take to avoid pensions getting lost in the ether.

- Check your personal details such as home address and phone number are up to date across all your pension plans. This helps your existing and previous providers relay any important information to you.

- Ensure all your providers have your current email address so they can contact you if you leave a job.

It can also be worth consolidating your plans into one so you have less admin to handle, but this isn’t for everyone.

For example, you might want to keep hold of benefits that come with a pension such as life insurance or a dependant’s pension.

It is generally not worth transferring a final salary pension either, as you would be losing a guaranteed income.

Ambery, from Standard Life, said: “Bringing plans together won’t be right for everyone, so check that you won’t be missing out on any benefits or guarantees by doing so.

“If you’re unsure about your options, you may want to seek advice from a financial adviser. You can find an adviser in your local area at Unbiased.

“You can also access free impartial guidance from MoneyHelper.”

How to find lost ISAs and savings accounts

If you took out your ISA through a wealth platform such as Hargreaves Lansdown, AJ Bell or Charles Stanley, they should be your first point of contact. They can update your contact details and reunite you with your savings.

Trade body the Investment Association also offers a free service via its Unclaimed Assets portal to track down stock-market related investments such as stocks and shares ISAs, investment funds or Exchange Traded Funds (ETFs).

Looking for cash savings accounts, opened through a bank, building society or NS&I?

You can use the My lost account service to search for accounts that have been marked as lost or dormant by your provider.

Set aside some time to complete the registration process.

Firstly, you need a valid email address. Then, to maximise your chance of finding an old savings account you’ll need to input as many of your previous addresses as you can remember and which institution the account was held with.

You’ll also be asked for sort codes, account numbers but it is not essential to provide these. Your request is then sent off to the bank or building society which contacts you directly once they’ve completed a search.

If your bank hasn’t marked the account as lost or dormant, however, you might not be successful.

Child Trust Funds are another type of savings account that commonly ends up lost. Child Trust Funds were set up for children born between 1 September 2002 and 1 March 2011.

More than a quarter of the accounts were opened by the government on behalf of parents.

According to HMRC, the value of unclaimed accounts for children who’ve now turned 18 but have never accessed their money is £1.4 billion.

Charlene Young, senior pensions and savings expert at wealth platform AJ Bell, said: “With over a quarter of these accounts set up by the government because parents failed to do so within the 12-month window it’s no surprise how much money sits unclaimed. Parents and children weren’t aware or won’t remember that an account was even set up, let alone where the money is now.”

You can search for a lost Child Trust Fund on the government’s website using your national insurance number and date of birth.

We explore lost Child Trust Funds in more detail in a separate piece.

How to find lost shares

If you’ve bought shares directly with a company, rather than going through a wealth platform, you’ll need to contact one of three share registrars – MUFG, Computer Share or Equiniti – to start your search.

If you don’t know which registrar is in charge of your shares, you’ll have to make enquiries with all three. You’ll need to tell them which company you think you have shares with as they can only carry out a search based on what you have told them.

Be ready to pay some fees here, however, depending on what changes they need to make to your records or if you can’t find your share certificate and need a new one.

Duncan Stevens, chief executive of free-account tracing service Gretel, said: “If you don’t have a share certificate you’ll need to sign an indemnity form and you may be charged an additional fee for an insurance indemnity.

“It’s an insurance policy that protects the organisation from fraud in the event that somebody finds that certificate and tries to make a claim against those shares for that money.”

You could also be charged for changing your address and asking for a dividend cheque to be reissued because it was posted to an old address. Fees can run from the tens of pounds into hundreds of pounds depending on the work that needs to be done.

How to find lost Premium Bonds

To find lost Premium Bonds, NS&I has its own tracing tool on its website. It will be able to find your bonds even if you have lost your bond document or you can’t find your holder’s number.

You can log into your NS&I account online to find your holder number which contains details of all your bonds. If you can’t remember your NS&I online account number, you can receive it by email after passing a security check.

Savers can also write to NS&I to locate lost bonds.

Unless you have cashed them in, your Premium Bonds will have continued to be entered into the monthly prize draw so don’t forget to check its prize checker tool to see if you’re owed any cash. There are millions of unclaimed Premium Bonds prizes out there, so it could be worth checking.

We explain how Premium Bonds work and how Premium Bonds prize winners are notified in separate articles.

Do you have a money story you'd like to share? Get in touch by emailing editor@moneyweek.com.

Cash ISAs have been in the headlines for all the wrong reasons in the past few months after it emerged that chancellor Rachel Reeves was being lobbied to reduce the annual cash ISA allowance to £4,000.

The Treasury has since confirmed that they are looking into cash ISA reform, with Reeves saying she is trying to “get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission”.

This has, unsurprisingly, sent alarm bells ringing for many cash ISA savers who aren’t keen on putting their money into the stock market.

But, a reduced cash ISA allowance may not be the end of the world, according to Rob Morgan, chief investment analyst at Charles Stanley.

The stock market typically grows your money more

The stock market has an awkward reputation among some who are not well-acquainted with it. Images of the huge highs and cavernous lows of Wall Street spring to mind.

But, although the value of your investments can certainly go down, over the long term a well-diversified portfolio that is managed responsibly tends to grow.

Morgan notes that “£100 a month saved into cash since April 1999 when ISAs were introduced would be worth £38,493. The same amount invested in global shares would have grown to £160,849".

“Even for a fund aiming to follow the relatively poor performing UK market over the same period would have outperformed cash handsomely at £77,758,” he added.

Historical stock performance is not necessarily indicative of future performance.

“The cash ISA is a very useful product. It allows you to earn interest tax free and can simplify your financial life by keeping that portion of your savings out of tax reporting obligations,” says Morgan. “However, you can have too much of a good thing.”

By stuffing money into cash ISAs rather than investing it, people may be “missing out on better opportunities to build long term wealth,” says Morgan.

If you properly manage and diversify your investment portfolio, then, the stock market has the potential for your money to see much stronger growth over the long term than if it were in a cash ISA.

It is generally good to start investing with the expectation that you will be holding on for at least five to ten years. This way, you do not need to panic over short-term market volatility.

Of course, whether or not you should put more of your cash into the stock market is a personal decision which requires you to consider your appetite for risk.

There are lower-risk options for stocks and shares ISAs

If talk of market crashes and economic downturns dissuades you from opting for a stocks and shares ISA, you shouldn't rule it out quite yet. There are many lower-risk options that you can place in your stocks and shares ISA.

Morgan notes that “those wanting cash-like returns in exchange for a small amount of risk could invest in money market funds or short-dated gilts, both of which are available inside a stocks and shares ISA”.

“Purchasing a UK gilt that has, say, one or two years to run is a bit like using a fixed term savings product, except the capital value can fluctuate and, depending on the individual gilt, will offer a mixture of income and capital return,” Morgan says.

The reason gilts are low-risk is because they are issued directly by the government and so are certain to be repaid, bar a total societal collapse. The UK’s debt management office says that the government has never once failed to pay back the money they raised from issuing gilts.

Another low-risk option for your stocks and shares ISA is a money market fund.

Morgan explains that a money market fund is an open-ended investment fund that invests in a diversified portfolio of cash deposits and other instruments.

The goal of a money market fund is “to produce a competitive cash-like return from the interest received on the investments in the portfolio and to provide short term access for investors,” he says.

Depending on the remit of the fund you decide to invest in, they could also include high-quality, shorter-term bonds that pay either a fixed or floating rate of interest.

There are other tax wrappers for your savings

Another reason it may not be the end of the world if the cash ISA allowance is reduced is that another tax wrapper may be able to temper the blow.

Morgan at Charles Stanley points out that many taxpayers already enjoy a certain amount of tax-free interest on their savings that are kept outside ISAs via the personal savings allowance.

This allowance lets basic-rate taxpayers earn up to £1,000 in savings interest a year without incurring tax. Higher rate taxpayers can get £500 of interest tax-free, but additional rate payers don’t receive any personal savings allowance.

If you’re on a low income (perhaps because you have retired), there is a special 0% rate of income tax on savings income up to £5,000, known as the starting rate for savings.

Morgan also points out Premium Bonds could help protect your money from tax, as prizes are tax-free.

You can buy up to £50,000 worth of Premium Bonds, however, Premium Bonds do not pay guaranteed interest. Instead, each month you are entered into a prize draw where you could win a prize. Prizes start at £25 and go up to £1 million.

The more bonds you hold, the more likely you are to win as each £1 bond is able to win individually – the chance of winning any prize is 22,000 to 1. Despite this, around two thirds of Premium Bonds savers have never won a single prize, according to new data obtained from NS&I by AJ Bell.

How much money is put in cash ISAs?

The tax-free aspect makes cash ISAs an attractive option for savers, but data from HMRC suggests that few are able to get close to saving £20,000 in them every year.

In the 2021/22 tax year, around 3.5 million people saved less than £2,500 in cash ISAs, according to the latest data from HMRC.

Some 870,000 put between £2,500 and £5,000 in these accounts during the period, while 1.3 million deposited between £5,000 and £20,000.

Overall, around £726 billion in total is held in both cash and stocks and shares ISA accounts across the UK, with the majority in stocks and shares, according to data from HMRC analysed by AJ Bell.

Only around £100 billion is held in cash ISAs, and around 14.4 million people in the UK possess only a cash ISA, forgoing the stocks and shares alternative.

The new tax year has arrived, which means the annual ISA allowance has reset. With the fresh opportunity to put up to £20,000 into your ISAs, now could be a good time to review your savings accounts and make sure you’re getting the most out of your money.

While you may think that your ISA savings are already stashed away in accounts that provide decent growth, there is a real risk that this isn’t happening.

Yorkshire Building Society recently revealed that millions of cash ISA savers are missing out on hundreds of pounds worth of potential interest by holding their money in cash ISAs that pay an interest rate of 1.5% or less.

It could be because the interest rates have been reduced since the accounts were opened, or because the money has been left there despite more competitive rates being launched on the market.

Some providers have enticed customers with temporarily high interest rates, via a limited-time bonus rate, meaning your money could be languishing because you did not realise that the bonus has come to an end.

Harriet Guevara, chief savings officer at Nottingham Building Society, says it is “crucial to review your cash ISA regularly” to make sure your savings are working as hard as they can, because interest rates and market conditions can change.

Guevara says it is a good idea to “compare rates across providers and make sure your ISA still aligns with your financial goals and risk tolerance”. She adds: “If your circumstances or goals change, it might be worth adjusting your strategy by diversifying with other ISA products.”

With that in mind, it is worth taking stock of whether you’re getting the best savings rates and considering moving your money from low-paying accounts, especially if the rates are below inflation.

Make sure your bonus rate account is working for you

Some of the best cash ISAs on the market right now are ones which include an introductory bonus rate for a certain number of months, especially for new customers.

For example, the highest interest provided by a cash ISA right now is Plum’s 5.92%. While that looks great on paper, once the bonus has expired, your ISA holdings won’t be working quite as hard. That's because the rate will fall to just 3.54% after three months. While that is not necessarily a bad interest rate, it is still far below the best offers on the market.

Similarly, the second-best cash ISA is Chip, with a rate of 5.90% (including a bonus rate of 1.58%), while Moneybox pays 5.67% (bonus rate of 1.47%). Once the bonus period ends, the rates will drop.

If you opened an account that included a bonus rate in the last tax year, it is well worth checking to see whether you can get a better rate elsewhere, as it may have come to an end.

Currently, Tembo Money and Monument Bank both offer fairly competitive interest rates on cash ISAs that do not include bonus rates – these are 4.80% and 4.76% respectively.

Maximise your ISA limit sooner rather than later

There has been lots of speculation recently that the annual tax-free cash ISA allowance could be reduced to just £4,000.

While changes weren't announced in the Spring Statement, chancellor Rachel Reeves has since said her team is looking into reforming the cash ISA. It’s been suggested changes could incentivise more people to move their money into a stocks and shares ISA to give a boost to the UK’s stock market.

If the Treasury decides to reform the cash ISA, the details of this would likely be announced at the Autumn Budget.

For cash ISA savers who want to maximise their £20,000 allowance, acting sooner rather than later could be a good idea. That way, if the allowance is cut to £4,000 later in the year, you will potentially have already deposited an extra £16,000.

Guevara at Nottingham Building Society echoes this, telling MoneyWeek: “With the government reviewing the current cash ISA regime, it’s more important than ever to act early and make the most of this valuable savings tool while the rules remain in place.”

“Starting early is key,” Guevara adds. “By contributing to your cash ISA at the beginning of the tax year, you give your savings the maximum amount of time to grow tax-free. This can be especially important for long-term goals such as buying a home or preparing for retirement. The earlier you start, the more your savings can work for you.”

Should you move your cash ISA to a stocks and shares ISA?

If you are concerned about your money not yielding enough interest, one way that you may be able to achieve higher returns is by moving your cash ISA savings into a stocks and shares ISA. However, this entirely depends on the stocks that you invest in and how the overall stock market performs.

Global stock markets are currently in a poor state after Donald Trump announced a new tariff regime on 2 April – or as he dubbed it, “Liberation Day”.

The S&P 500, a stock market index of 500 large companies in the US, fell 12% in the week following the announcement, while the FTSE 100, which tracks the performance of 100 large firms in the UK, fell by over 7% in the same period.

Nevertheless, the average stocks and shares ISA returned around 11.86% in the year between February 2024 and 2025, according to Moneyfacts. Those gains trump even the highest annual interest rate offered on a cash ISA.

Furthermore, recent analysis by Hargreaves Lansdown found that ISA investors could be £34,000 better off over a decade if they maxed out their stocks and shares ISA allowance at the beginning of every tax year rather than waiting until the last minute.

While the nature of the stock market means there is no guarantee that your stocks and shares ISA will realise the same returns this year, it might be an option you want to consider.

Experts suggest that, when investing, it is best to take a long-term view and not be worried about day-to-day market fluctuations. Hargreaves Lansdown says investors ought to judge the performance of their portfolios over five or more years.

How to transfer a cash ISA

In order to make your money work the hardest it can, you may need to transfer your cash ISA savings to another provider. Note that it is possible to open and pay into more than one cash ISA each tax year, thanks to a recent rule change, but not all providers allow this, so you may need to move your money instead.

Transferring a cash ISA is usually a relatively straightforward process that does not affect your annual allowance, and typically takes no longer than 15 working days.

Nevertheless, it is important to know the ins and outs of the process before you decide to move your savings to another ISA provider. MoneyWeek has a full guide on how to transfer an ISA that answers the most common questions about the process.

It's important to follow the transfer process, rather than withdraw the money from one cash ISA and then pay it into another. If you do the latter, you will lose that part of your annual ISA allowance.

Millions of savers are missing out on hundreds of pounds each year as their cash ISA savings earn paltry interest rates.

More than £46 billion sits in nearly 6.9 million cash ISAs that pay interest rates of 1.5% or less, according to new data from Yorkshire Building Society.

The average balance of these cash ISAs is just over £6,700. Despite competitive cash ISA rates on offer, the amount sitting in these low-paying accounts has grown by £3 billion in the last year.

The highest-paying cash ISA on the market at the moment pays an interest rate of 5.56%, meaning savers who aren’t keeping an eye on the best interest rates could be missing out on a substantial amount.

If a saver held £6,700 into a cash ISA that paid interest of 1.5% for 12 months, they could end the year with £6,800.50, earning £100.50, according to MoneyfactsCompare.

In the best-performing cash ISA (currently 5.56%), the same deposit would earn £372.52 in interest by the end of the year – creating a total of £7,072.52. This means they can get £272.02 more by choosing a market-leading account.

Savers with their money stashed away in these low-paying cash ISAs are actually losing money in real terms.

This is because inflation has not been at 1.5% or below since April 2021. The UK has experienced high inflation in recent years – peaking at 11.1% in October 2022. In the year to February 2025, prices rose by 2.8%.

The purchasing power of their ISA holdings is, therefore, being eroded as the interest savers earn is not enough to keep pace with inflation.

Harry Walker, senior savings manager at Yorkshire Building Society, said: “It’s surprising to see such a large amount still sitting in low-paying ISA accounts after a period of significant increases to savings interest in the last two years.”

He urged savers to “take action and think about how they can make their hard-earned cash go as far as possible,” adding that this is especially true as the new financial year provides a “perfect opportunity” to review ISA holdings.

Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, echoed this sentiment: “With sticky inflation, savers that are not proactively moving to more attractive deals could stand to lose money in real terms as it eats its way into consumers’ pots.”

How can I transfer my cash ISA?

With hundreds of pounds of returns being left on the table by cash ISA holders with their money in low-paying accounts, it is a good idea to check whether you have picked the best cash ISA for your money.

Transferring your ISA is a relatively straightforward process that does not affect your annual allowance, and typically takes no longer than 15 working days.

Nevertheless, it is important to know the ins and outs of the process before you decide to switch your ISA to a better-suited provider. MoneyWeek has a full guide on how to transfer an ISA that answers the most common questions about the process.

What is the best cash ISA on the market?

The highest-paying cash ISA on the market changes often as banks are constantly competing with one another and trying to make the most attractive offer for prospective customers.

Every week MoneyWeek publishes an up-to-date list of the best cash ISAs, as well as the best fixed-rate cash ISAs on the market right now.

Cash ISA reforms are in the government’s sights as it looks for ways to reinvigorate the UK’s private markets. New research suggests, though, that people might be moving away from cash ISAs of their own accord.

Different kinds of ISA can be used for different purposes. Cash ISAs and stocks and shares ISAs are two of the most popular. A cash ISA is effectively a savings account that offers tax-free interest, while a stocks and shares ISA allows you to invest in funds, stocks and trusts.

While no direct mention of cash ISAs was made in chancellor Rachel Reeves’ Spring Statement last week, documentation following the event confirmed that ISA reform is under consideration and that the cash ISA threat remains.

“Despite holding off on reform today, the government has confirmed change to the status quo is being considered ahead of the Budget later this year,” said Michael Summersgill, CEO of AJ Bell, following the chancellor’s statement, “with Labour having already committed to ISA simplification and encouraging greater use of stocks and shares ISAs during the general election campaign.”

The speculation is that the government will reduce the annual ISA limit specifically for cash ISAs, perhaps to as low as £4,000 per year, in order to encourage more people to invest in the stock market via a stocks and shares ISA.

“The government wants to get more people into investing, helping them increase their wealth while supporting wider economic growth.” says Andrew Prosser, head of investments at investment platform InvestEngine.

Cash ISA growth is falling: stocks and shares are on the rise

Government intervention might not be needed, though. New research from InvestEngine has found that new cash ISA openings are declining while stocks and shares ISAs are on the up, and that the amount invested in the latter is substantially higher than the amount held in cash ISAs.

New stocks and shares ISA openings have increased 57% in the five years from 2018/19 to 2022/23, the most recent year for which data is available, according to InvestEngine’s analysis of HMRC data.

Conversely, new cash ISA openings fell by 7% during that period.

More funds are held in stocks and shares ISAs compared to their cash counterparts. The amount of funds held in stocks and shares ISAs increased 37% over this five year period to £431 billion, while cash ISA holdings have increased just 9% to £294 billion – meaning stocks and shares ISAs hold 46% more than cash ISAs.

^{Source: HMRC Annual savings statistics 2024 via InvestEngine}

“Although reforms have been delayed, our analysis shows stocks and shares ISAs are in fact increasing in popularity without the explicit need to make cash ISAs less appealing,” says Prosser.

Cash ISAs vs stocks and shares: which is better?

The debate over cash ISAs versus stocks and shares ISAs has been going on for some time, and with the end of the tax year approaching fast, savers and investors will be wondering where best to put their money.

In truth, it’s not an either/or situation. Both types of ISA offer particular benefits, and have a role to play in building long-term wealth and financial security.

Cash ISAs offer relatively easy access to your money whenever you need it. As such, they’re a good place to save for essential spending. How much you should have in savings varies depending on your particular circumstances, but as a rule of thumb many experts recommend having enough saved to cover three to six months’ essential spending.

It’s worth considering allocating any further cash above this to a stocks and shares ISA, though. Funds held in a cash ISA tend to perform poorly compared to the stock market over time, and can often fail to keep up with inflation.

“Past performance shows investment beats interest in the long-term,” says Prosser. “The government should use this period to improve public understanding of how investing, especially through diversified, simple and low-cost products like ETFs, could help more people to achieve their financial goals.”

While you don’t want your emergency savings to be invested in stocks and shares (in case you need them while the stock market is enduring a downturn), this is often the best way to build your longer term wealth.

Given high levels of current inflation, which many rates on offer from retail banks fail to match, "it makes sense for long term investors to favour investing over saving, even if it’s in simple index trackers”, says Dzmitry Lipski, head of funds research at Interactive Investor.

“As we move into a more uncertain market environment, it makes sense for cautious investors – or someone approaching retirement – to focus on capital preservation and limit volatility by maintaining a reasonable cash buffer within a well-diversified portfolio.”

In terms of InvestEngine’s research, the period in question was a notably poor time to invest in cash given it coincided with historically low interest rates and a boom period for the stock market.

That said, the stock market downturn at the end of the period might have prompted a bigger turnaround in momentum than was in fact the case.

“Despite historically low interest rates during the pandemic having come to an end, the number of cash accounts being opened hasn’t bounced back,” says Prosser.

UK chancellor Rachel Reeves is not the only one who wants you to stop putting your money into cash ISAs, especially if you're a woman, as you are quite simply missing out on wealth accumulation.

AJ Bell Money Matters, a campaign run by the investment platform AJ Bell to promote women’s financial independence, found that while women were ahead of the game when it comes to saving, holding around a million more cash ISAs than men, the same cannot be said about investing with men holding around 500,000 more stocks and shares ISAs. HMRC data shows men’s ISAs are worth at least £3,000 more than women’s. It also means the UK has a gender ISA gap totalling £6.6 billion. This is one of the many financial gaps women face, such as the pensions gap.

It starts early at age 21 and peaks when women are in their thirties, when the total ISA gap hits 46%.

While I do not believe for a second that the suggestion of capping the cash ISA at £4,000 will somehow push female cash hoarders into stocks and shares ISAs – and neither should cash lovers be bullied into doing so by having their tax-free wrapper allowance cut – it is worth looking at what the barriers to investing for women are and what can be done about it.

Why do women not invest?

The saying, ‘time is money’ rings true here. Women often say they do not have the time, but it does untimely cost them long-term wealth as they miss out on years of compound growth, plus they fail to keep up with inflation by not investing.

It’s understandable. If you’re a busy mum for instance, you may find searching the internet on investing information somewhat overwhelming and it could take hours.

It doesn’t matter how well tuned you are with your finances, even the best of us can let investing slip.

Speaking at an event in the House of Lords this morning, Baroness Helena Morrisey said even she, as someone who managed other people’s money as a fund manager, neglected her own finances due to a busy life.

However, she said it was still important that women thought about their goals and took control of their financial futures.

Baroness Morrissey said she simply did not spend enough time thinking about investing in her 30s when she could have taken more risk to maximise returns.

But, it’s never too late for anyone who is thinking about it, especially as investment firms do more to attract women and simplify processes to help you get started. Too much jargon is also often seen as another barrier, alongside a lack of knowledge. And for those that do look, they say it is overwhelming and face choice paralysis.

How to start investing

It is understandable that you may feel nervous about investing, but once you start, you’ll wish you started sooner. While investments can go down as well as up, over the long term, data shows investments almost always return more. Here’s what to think about to get started:

• Start small. Some platforms let you start with a pound, but putting in a meaningful amount like £25 a month means you’ll build up a good amount and benefit from pound cost averaging – which means you can smooth out the ups and downs of the market. So, setting up drip feed for a set amount each month makes good sense.
• Tax-free returns: If you think you have too much in a cash account and do not plan to use it for at least five years or more, consider moving it to a stocks and shares ISA, where your returns are also shielded from the tax man and your wealth can grow at a faster rate. Currently you can put up to £20,000 in any given ISA, though there are rumours that Rachel Reeves may cap the cash ISA at £4,000 to encourage more people to invest instead.
• Start with an app: When picking where to put your money, try an investment app. They simplify the process and many of them will also ask you a series of questions to assess how you feel about risk and then suggest funds for you. So, all you have to think about is paying in each month.
• Set goals. Knowing you’re working towards something is always great motivation.

Currently, the best fixed rate cash ISAs can help you grow your tax-free savings and are returning up to 4.72% on your cash.

ISAs are some of the best savings vehicles you can use in the UK, as they allow for up to £20,000 of tax-free savings a year.

If you're seeking the best cash ISA with a fixed rate, we list the top options currently on the market. We look at how many ISAs you can have in another guide.

Best 1 year fixed rate cash ISAs

If you’re willing to lock away your money for one year without withdrawing any of it, you could grow your savings by up to 4.7%.

Best cash ISAs up to 18 months

If you are after an account that keeps your money growing for up to 18 months, you can earn up to 4.32% using one of the following savers.

Best 2 year cash ISAs

Two-year fixed rate ISAs are a good option for people who want to grow their money in the medium term without worrying about micro-managing their savings. Savers can earn up to 4.71%.

Best 3 year fixed rate ISAs

Savers who are willing to lock their cash away for three years can access interest rates of up to 4.66% by using one of the following savings accounts.

Best 4 year fixed rate ISAs

If you’re putting your money away for four years, you can earn up to 4% using one of the following accounts.

However, it is worth bearing in mind that if you are willing to keep your money in savings for an extra year, you can access a higher interest rate of 4.72%.

Best 5 year fixed rate ISAs

A five-year fixed-rate ISA is a good option for long-term savers who are trying to save towards a financial goal in the future.

The following accounts allow for up to 4.72% returns on your savings.

Soaring living costs have dented disposable income and frozen income tax bands (which is effectively a tax rise) only make it more difficult to save. Even when we can afford to set aside money for the future, improved interest rates and frozen tax allowances mean savers are at risk of being taxed on the interest.

Cash ISAs have become far more attractive in recent years for this very reason. Adult cash ISA balances increased by £38.5 billion between January and October 2024, compared to £9.5 billion for adult non-ISA accounts, according to consultancy CACI.

Thanks to the annual ISA allowance, savers have been able to save for short-term goals without worrying about being taxed on the interest.

They’re a particularly important product right now, letting Brits shield up to £20,000 per tax year in savings from the taxman. HMRC data suggests £10.4 billion is expected to be generated from savings interest in the 2024/25 tax year, ten times the £1.4 billion raised in the 2021/22 tax year.

But cash ISAs could be under threat, as Rachel Reeves is reportedly being lobbied to put a £4,000 annual limit on deposits into this type of ISA, in hope that it would encourage investment in UK stocks instead.

Adding a £4,000 limit specifically for cash ISAs would mean Brits could only put a fifth of what they currently can into these tax-free savings accounts.

I think this would be a terrible move. It could cause a major headache for savers, who should have the right to choose to save rather than invest if they need or wish to.

Strong-arming people into stocks and shares ISAs is the wrong decision

Like many others, the importance of working hard and setting aside money for the future has been instilled in me from a very young age. I can still remember the joy when, having carefully saved up my pocket money each week, 50p at a time, I could finally afford a Sylvanian Families set which I had long-admired.

Fast forward to adulthood, and I’ve slowly but surely been squirrelling away part of my pay cheque into a top-paying savings account each month. I’ve been taught to save (and invest) rather than splurge – something I am very grateful to be able to do. No one forced me to follow these principles. Rather, I was coached and encouraged, and it became something I wanted to do for my future.

Creating a specific cash ISA deposit limit to strong-arm people into putting money in stocks and shares is the wrong attitude.

We shouldn’t be forced to put our savings anywhere. After paying tax and National Insurance, that hard-earned money is ours and it should be our choice as to what we spend it on or how we look after it. We’re old enough to earn an income – we don’t need the government to decide how we grow it.

Rather than removing the option to use the full tax-free allowance in cash ISAs, it would be far more effective to encourage people towards investing by improving financial education. There should be a greater focus on explaining the options that are available. Looking at the pros and cons of cash vs stocks and shares ISAs is a good starting point.

Understanding how inflation can erode savings is more likely to motivate people into reviewing their finances. For example, if someone invested £10,000 in a cash ISA in December 2012, they would currently have £11,955. Adjusted for inflation, this amounts to just £7,918, Quilter’s calculations show. Getting people to understand this would be more effective than a politician enforcing an arbitrary limit on cash ISAs.

A £4,000 cash ISA limit could hurt property market

A £4,000 cash ISA limit would be a terrible decision for the countless people who are trying their hardest to get onto the property ladder.

I know this first-hand. I’ve been working towards getting on the property ladder for years now. I had hoped to be in a position to buy within five years, which meant saving money in a Lifetime ISA and top tax-free savings accounts seemed like a better option than investing.

At a time when cash ISAs are so attractive, enforcing a £4,000 limit would just create another hurdle for prospective first-time buyers to navigate – it’s already hard enough to gather that mortgage deposit thanks to high house prices and living costs.

It’s not just first-time buyers frantically trying to amass a mortgage deposit that could be hurt though. It could potentially cause chaos when it comes to getting a mortgage too.

Robin Fieth, chief executive of the Building Societies Association, has warned cash ISAs are an important source of funding for banks, building societies, credit unions and other providers which use the deposits to fund loans to households and businesses.

In a letter to Reeves, he warned major changes to cash ISAs would have a knock-on impact on the price and availability of these loans.

Fieth pointed out cash ISAs not only help consumers to achieve their savings goals, but they also “play an integral role in the UK savings market and have done for many decades”. He added: “They represent a policy success upon which we should seek to build, rather than to curb.”

Another ISA limit could be confusing

While 18 million people have a cash ISA (according to latest HMRC figures), 2.1 million people are expected to be taxed on their savings this financial year. This is up from around 650,000 three years ago, according to a Freedom of Information request by AJ Bell, published in September 2024.

With so many people set to be dragged into paying tax on their savings interest, a new limit is the very last thing savers need.

ISA rules became somewhat simpler in April 2024, with new rules allowing you to open more than one of the same type of ISA during a tax year. Previously, you could only open one cash ISA each year.

There are still lots of confusing areas of ISAs though.

For instance, a specific limit within the annual ISA allowance already exists. You can put a maximum of £4,000 per tax year into a Lifetime ISA, as long as it doesn’t exceed the overall £20,000 cap. Savers can earn a 25% government bonus on the money you put into a LISA, which is worth up to £1,000 per year.

The withdrawal rules are strict – make an “unauthorised withdrawal” and you’ll incur a 25% charge for the total amount in your pot. It means that if you put in £800 and get £200 via the 25% government bonus, you'll have £1,000 in a Lifetime ISA. But if you withdraw the entire pot, you'd be charged 25% – leaving you with just £750.

That means it’s a big commitment to put money into a Lifetime ISA. The “authorised withdrawal” criteria is becoming much harder to meet as house prices rise – first-time buyers are at risk of being priced out of using Lifetime ISAs to purchase in 62 UK areas. So, would Reeves be better focusing on improving this product, rather than cutting down the amount people can put in cash ISAs?

Rather than making unnecessary changes to cash ISAs, I think Reeves should make ISAs simpler to understand and use, and look at ways to incentivise investing in Britain, rather than removing choice.

As the end of the tax year looms, many savers and investors may be trying to decide whether to pay more money into their cash ISA or stocks and shares ISA.

Some will be worried about speculation that chancellor Rachel Reeves is considering reducing the cash ISA limit in a bid to get savers investing and boost the UK economy. They may therefore choose to squirrel away more money into their cash ISA in case any changes are announced.

Falling cash ISA rates may also be a concern after the Bank of England cut interest rates earlier this month, and economists warn of more rate cuts to come.

This could make them favour investing in a stocks and shares ISA instead.

ISA customers have until midnight on 5 April to use up their £20,000 ISA allowance. Once the 2025-26 tax year starts, the current year’s ISA allowance is lost.

When weighing up whether to contribute to a cash ISA or stocks and shares ISA it’s also worth considering their performance.

Cash savers have enjoyed decent returns over the past few years, thanks to rising interest rates. The average cash ISA rate during the 12 months to February 2025 was 3.8%, according to Moneyfactscompare.co.uk.

This was higher than the 3.73% rate recorded a year earlier, and the 1.71% seen a year before that.

However, the average stocks and shares ISA has returned more than three times that amount. The average stocks and shares ISA returned 11.86% between February 2024 and February 2025, said Moneyfactscompare.co.uk, which analysed Lipper fund sectors.

Iain Barnes, chief investment officer at the wealth manager Netwealth, tells MoneyWeek: “It’s interesting that, over this period, investing in markets was better rewarded than holding cash, even at the high level of interest rates available last year.”

However, he adds: “This better performance isn’t unusual. Stocks and shares ISAs likely capture a wide range of underlying exposures and while we wouldn’t recommend investing for only one year, a diversified portfolio of riskier investment assets [often outperforms cash]. More importantly, the gap in performance increases over time, so that if investors are able to commit to a longer investment horizon, they are usually rewarded.”

Why did stocks and shares ISAs outperform cash ISAs?

The Moneyfactscompare.co.uk analysis looks across more than 40 Lipper fund sectors. It found that the best-performing sector was “financial and financial innovations” so if an investor solely invested their ISA in that sector they could have got a bumper 34.74% return.

North America, Japan and UK equity income also returned strong growth of 24.43%, 10.08% and 14.50% respectively over the past 12 months.

In contrast, the worst-performing sector was Latin America, which fell 11.15%.

Barnes notes that stocks and shares ISAs’ outperformance was due to “global economies proving more resilient to high interest rates than many people imagined, and markets generally performing well in response”.

He adds: “Equity markets are pushing higher amid relentless political noise and usually driven by events in the US. It is reassuring to see good performance broadening out from the group of very successful technology mega companies based in the US to other parts of the market, which have been less popular in recent years.”

What’s the outlook for this year?

Against a backdrop of falling cash ISA rates, stocks and shares ISAs may well outperform again over the coming year.

However, stock markets will also have their own challenges, such as weak economic growth due to global trade and fiscal policies, and stubborn inflation.

“Ultimately, stock markets will need to assess whether the current underlying strength of companies growing profits can offset the noise we all hear in daily newsflow,” says Barnes.

“Some parts of the market are expensive after the strong performance of recent years, but we recommend building a diversified portfolio over second-guessing where the best returns will come from. Even bond markets, where returns have been weak in recent years, now offer good yields which will be appreciated as and when cash rates come down. Simply put, we expect investors will continue to be rewarded for putting their money to work in the years to come despite the risks that lie ahead.”

Should I switch to a stocks and shares ISA?

It’s important to point out that past performance is not an indicator of future performance, and that investing is riskier than keeping your money in cash.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, notes that while savers may be intrigued to know that stocks and shares ISA growth outpaced cash ISAs over the past 12 months, “cash ISAs still have their part to play for customers, particularly the more risk averse”.

She adds: “The government’s freeze on income tax thresholds makes cash ISAs more attractive, as there will be more savers falling into the higher-rate tax bracket, effectively halving their personal savings allowance [from £1,000 to £500].”

Laura Suter, director of personal finance at the investment platform AJ Bell, tells MoneyWeek that the key question when choosing between a cash ISA and a stocks and shares ISA is: are you saving for the short term or the long term?

She explains: “If you’re setting money aside for an emergency fund, typically three to six months’ worth of expenses, then a cash ISA is a solid option. It keeps your money accessible while offering tax-free interest.

“But if you’re looking at medium- to long-term goals, such as saving for retirement alongside a pension, for a house deposit or home improvements in future, then a stocks and shares ISA can be a more effective route, given that markets tend to rise over time and outperform cash, despite short-term fluctuations.”

According to Suter, about three million people have more than £20,000 in a cash ISA without also holding a stocks and shares ISA, and over one million of them have more than £50,000.

She says this raises the issue of whether these “cash-heavy savers are missing out on long-term stock market returns. The Barclays Equity Gilt Study, which tracks data back to 1899, shows that over a 10-year period, UK equities have a more than nine in 10 chance of beating cash returns”.

Suter adds: “That’s not to say holding cash is inherently bad. Some people prefer the security of knowing their money is safe from market fluctuations. But it should be a conscious decision, rather than defaulting to cash and unthinkingly hoarding it.”

Plans to reduce the annual cash ISA allowance are seemingly on ice for now, but reforms could still be on the way over the longer term.

The chancellor was expected to announce that the proportion of your £20,000 ISA limit that you can save into a cash ISA will be cut, possibly to as little as £5,000, at her Mansion House speech on 15 July, but reports now suggest she has delayed the cut.

While cash savers may welcome the decision, the prospect of ISA reform isn't off the table forever.

The Treasury is taking more time to consult figures in the savings and investment industries about the repercussions of the change. An announcement is no longer expected at Mansion House, but the cash ISA limit still seems set for a cut or other significant reform as the chancellor seeks ways to boost retail investment in Britain.

This would mean that if savers want to use their full ISA limit to make the most of the tax-free savings they will have to put most of it into a stocks and shares ISA.

Reeves’ reasoning behind reducing the cash ISA limit seems to be that such a move could incentivise savers to put their money into a stocks and shares ISA instead, with the aim of propping up the British stock market.

The chancellor previously said in March that she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment”.

If Reeves goes through with these plans and reduces the cash ISA limit, it would mark one of the biggest shake-ups to the UK’s savings market since ISAs were introduced in 1999.

Though the proportion of your ISA limit that you can save in cash seems set to be reduced, Reeves has previously ruled out a reduction to the overall £20,000 ISA limit which can be spread across the four different types of ISA – cash, stocks and shares, innovative finance, and lifetime.

In May, the chancellor told the BBC: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.

“A lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.

“I absolutely want to preserve that £20,000 tax-free investment that people can make every year,” she said.

Some commentators have called for Reeves to leave the cash ISA limit alone, with Sarah Coles, head of personal finance at Hargreaves Lansdown, saying: “Cash ISAs are often a first port of call when people are starting out, and they’ll often gradually move over into investments as they find their feet.”

Cutting the cash ISA allowance, though, would mean those people “have less available to transfer into stocks and shares ISA – effectively reducing investments rather than boosting them,” Coles added.

When could a cash ISA reduction come into effect?

With an announcement of a cut seemingly ruled out for her address at Mansion House on 15 July, the next-most likely time we will hear about the shakeup seems to be in the run-up to the Autumn Budget.

This is because a reform of this size would be expected to be announced at a large fiscal event, and the next planned fiscal event is the Autumn Budget. This usually takes place in late October or early November.

Reeves has previously stated she is committed to only one large fiscal event a year, the Autumn Budget, in order to provide certainty and stability in markets.

Could a £5,000 cash ISA limit help the UK stock market?

Campaigners have suggested an annual cash ISA limit would encourage more people to put their yearly tax-free ISA allowance into a stocks and shares ISA, which would also boost the UK economy.

The Treasury seems to be open to these suggestions, following months of lobbying by City groups.

If savers do end up redirecting their cash ISA holdings into British stocks and shares it would mark a welcome boost to the UK stock market which is relatively unloved when compared to its peers in the US.

A recent campaign by investment platform IG argued that a reduction in the amount you can put in a cash ISA, as well as the removal of stamp duty on shares, is one way to save the UK stock market.

Furthermore, some experts have suggested that a reduced cash ISA allowance may not be that worrying, as stocks and shares tend to provide greater returns over the long term, and there are certain low-risk options that you can hold in a stocks and shares ISA.

However, while a redirection of ISA funds into equities would certainly be a boon for the London Stock Exchange, other groups seem sceptical about whether savers who do end up putting more money into stocks and shares will favour UK-listed companies.

US-listed stocks can be held in the stocks and shares ISA, and these firms have historically provided better returns for investors than UK-listed companies.

The S&P 500, a stock market index that tracks the performance of 500 of the US’s largest companies, has provided annualised returns of 15.5% over the past five years.

Meanwhile, the FTSE 100, which tracks the performance of 100 of the UK’s largest firms, has provided annualised returns of 13.2% in the last five years.

With better returns on your investments available elsewhere, there is no guarantee that there will be a large inflow of investment into London-listed stocks rather than those listed elsewhere in the world.

Brian Byrnes, head of personal finance at Moneybox, has also cast doubts over whether cash savers will actually move their money into the stock market.

“Simply cutting the tax-free allowance on cash ISAs will not necessarily prompt equal inflows into investing products either,” he said.

“People opt to use cash ISAs over their stocks and shares counterparts for a multitude of reasons, including risk aversion, and reducing the amount of money these savers can put into the cash ISA is unlikely to change this mindset.”

Cash ISAs are currently at the centre of a media storm, as rumours have been swirling that chancellor Rachel Reeves is thinking about stripping the popular savings vehicle of its tax benefits (see our separate piece on Reeves’s cash ISA raid).

It could be the wake-up call that some savers need to use up their £20,000 annual ISA allowance before 5 April, which will reset at the end of the tax year.

Rumoured tax reforms aren’t the only risk on the horizon. The savings rates on cash ISAs have also been falling in recent months, and are expected to fall further over the course of the year.

On 6 February, the Bank of England cut the base rate for the third time since the summer, and around three more cuts are expected this year.

With this in mind, now could be your last change to grab a 5% interest rate on tax-free savings, with the market-leading cash ISA currently offering 5.03% AER.

By acting quickly and putting some money in a one or two-year fixed-rate cash ISA, you could potentially lock these returns in for longer, avoiding a double-whammy of interest rate cuts and tax reforms.

Data from investment platform Hargreaves Lansdown suggests some savers have been taking advantage of the window of opportunity already. So far this month, savers have opened more cash ISAs than regular savings accounts via the platform.

“This doesn’t usually happen until mid-March, as we get closer to the tax year end, but the trend has kicked off already in February,” said Mark Hicks, head of active savings at Hargreaves Lansdown.

Open a cash ISA now before interest rates fall further

Even if the rumoured tax changes come to nothing, savers would be wise to take advantage of higher savings rates while they last.

Although they remain high compared to their long-term history, cash ISA rates have fallen over the past year – firstly in anticipation of base rate cuts and now in response to them.

The average rate on an easy-access cash ISA today is 3.04% (13 February 2025), down from 3.34% on the same day one year ago.

The market-leading easy-access cash ISA still offers 5.03% AER (including a 0.13% bonus for 12 months), but it is unclear how long these sorts of deals will stick around.

Most economists are now predicting one rate cut per quarter from the Bank of England, bringing the base rate to 3.75% by the end of the year.

With this in mind, savers could be better off opting for a fixed-rate account to lock in a guaranteed rate for a set period of time, if they are sure they won't need access to the money in the interim.

The top one and two-year fixed-rate accounts currently offer 4.42% and 4.31% respectively, for savers looking for an account with no initial opening limit.

Those with more to invest may be able to find an even more lucrative deal. For example, Caitlyn Eastell, spokesperson at comparison site Moneyfacts, highlights Hodge Bank’s two-year fixed-rate cash ISA as one of her top picks.

Although Hodge Bank has reduced its rate slightly this week, “the account maintains its position as the market-leader, paying 4.41% on its anniversary,” Eastell says. It has a minimum opening amount of £1,000.

Will Reeves scrap the tax benefits of cash ISAs?

For now, the rumoured changes are just speculation driven by reports that big city firms have been urging the chancellor to reduce tax breaks for cash savers – part of an attempt to drive investment into the UK stock market instead.

However, the Treasury chose to neither confirm nor deny the matter when MoneyWeek asked it to comment earlier this week, instead saying that it “keep[s] all aspects of savings policy under review”.

In practice, there are several ways the government could reduce the tax benefits of cash ISAs, from cutting the annual allowance to scrapping the product entirely.

Any restrictions are likely to prove unpopular. More than 18 million people have a cash ISA, and over £294 billion was held in this type of account at the end of the 2022/23 tax year, according to the latest statistics from HMRC (published in September 2024).

Data from the Bank of England also shows that 2024 was a record year for cash ISAs, with savers depositing over £49.8 billion, up from the previous record of £47.1 billion in 2023.

The popularity of cash ISAs could mean they end up becoming a victim of their own success, however, with the savings vehicle having caught the attention of government ministers as well as city firms.

Emma Reynolds, the economic secretary to the Treasury, recently questioned the sense behind hoarding billions of pounds in cash ISAs. “We have failed to drive an investment culture that we see in other places that allows people to invest their money,” she said.

The stock market almost always beats cash returns over the long run, provided savers invest sensibly in a diversified mix of companies. However, for many savers, it isn’t an 'either-or' situation when it comes to cash versus stocks and shares ISAs.

A cash ISA is often appropriate for short-term savings goals, while a stocks and shares ISA can be used as a tool for building longer-term wealth.

“A government that robs Peter to pay Paul can always depend on the support of Paul,” Irish playwright George Bernard Shaw once said in an adaptation of a quote that may have originated in Middle English.

Consider yourself, the cash ISA saver, Peter. You’re an easy target. Why should you get tax relief for simply parking your money in a cash account? The tax benefit should be used for people who deserve it, people who invest. Right? No!

There are several types of ISAs, and cash ISAs have been a great way to encourage people to save. While Reeves is desperate to show she is the right person to lead the UK onto a path of economic growth, removing the tax benefits of cash ISAs would be disastrous.

While Reeves’s cash ISA tax raid is heavily rumoured, the Treasury did not confirm or deny the matter.

In a statement to MoneyWeek, it said: “We want to help people save for their future goals and build greater financial resilience across the country. We keep all aspects of savings policy under review."

Cash ISAs were introduced by then chancellor Gordon Brown in 1999 and 25 years on, they are used by around 18 million savers.

Data from the Bank of England showed 2024 was a record year for the cash ISA market, with savers depositing almost £49.8 billion - up from the previous record of £47.1 billion in 2023.

Savers can stash up to £20,000 into an ISA of their choice. They act as a tax wrapper and shield the returns from the tax man.

But some City of London investment firms want the chancellor to curb the tax breaks for cash ISAs. They argued that it is not for the state to provide tax breaks for those who simply place their money in cash accounts - and the £300 billion in cash ISAs could better serve the struggling equities market.

But is removing the tax incentive the right move?

ISA reviews

If Reeves wants to ‘review’ ISAs and savings policies, surely what we need is an ISA simplification.

And if she wants savers to invest, then how about taking steps to educate people about investing - and perhaps, even listen to the calls that financial education needs to be in schools.

Savers don't invest because they do not understand it and cash feels safer, so it comes as no surprise that Brits continue to hold at least £10,000 in investable assets. And some people do not invest because cash is needed for short term needs or emergency cash.

Building Societies Association: ‘We urge you to maintain this important savings incentive’

In a letter to the chancellor, the BSA said it ‘strongly disagreed’ with reported calls from city firms to restrict cash ISAs and stressed the savings incentive should stay put.

“UK savers are now familiar with the concept and the ISA name is widely recognised. Today, cash ISAs form a key part of many people’s savings, whether that is for their emergency buffer, saving towards a dream holiday, or protecting some of their wealth from changes in the stock market. The implication made by many of those calling for curbs on cash ISAs is that the savings are lying idle and not supporting economic growth. But banks, building societies, credit unions and other providers use the deposits to fund loans to households and businesses.

“Substantially reducing the role of cash ISAs would have knock-on impacts on the price and availability of these loans if providers had to replace the funds from other sources,” the letter stated.

Should you invest?

While I stress that cash ISAs play a vital role in the savings space, far too many people are sticking to the safety net of cash when they could in fact by investing in stocks and shares to make their money grow.

Data from the Financial Conduct Authority shows savers hold at least £10,000 in investable assets, missing out on the growth of their wealth.

While savers may have enjoyed the inflation-busting interest rates over the last year, the fact is, over time, inflation will have eaten into the value of your cash.

While investing does come with risk and the value of your assets can go down as well as up, over the long term (five years or more), investments almost always do better and beat inflation.

Transferring an ISA can bring with it a number of perks, such as better customer service, higher interest rates or lower fees.

But there are rules to consider before doing a transfer to make sure you don’t lose any tax-free benefits.

Furthermore, a major rule change is coming into effect from April 2027.

From this date, the transfer of money from stocks and shares ISAs to cash ISAs will be banned and a charge will be applied on any interest accrued on cash held in a stocks and shares ISA.

The change is being brought in by the government as ministers look to push more savers towards investing in the stock market.

But experts have warned the change could make for a more siloed and isolated ISA market.

Rob Morgan, chief investment analyst at wealth management firm Charles Stanley, said: “It (the change) makes it harder for people to change course from investing as their circumstances evolve, especially in the absence of cash equivalent options in a stocks and shares ISA,” Morgan said.

But for those considering transferring an ISA under the current rules, we’ve explained all the need-to-knows below.

How to transfer an ISA to another provider

The main thing to remember when transferring an ISA is to not withdraw the money first.

Instead, you need to contact the provider of the ISA you want to transfer to. The provider should give you an ISA transfer form for you to fill in.

If you don’t follow this process while transferring a stocks and shares or cash ISA, they will lose their tax-wrapped status.

Bear in mind, not all ISA providers will allow you to transfer your account to them, so make sure you check beforehand.

Also note that if you’re transferring from stocks and shares ISA to another stocks and shares ISA, you may have to pay an exit fee to your current provider.

How long does it take to transfer an ISA?

It takes considerably longer to transfer an ISA than a standard bank transfer.

The transfer time varies depending on the provider a person is using, however, cash ISA transfers are the fastest, typically taking no longer than 15 working days.

This will usually be slightly longer for other types of ISAs, with stocks and shares ISAs and innovative finance ISAs usually transferring within 30 days. This is because there are various additional steps to take into consideration with this type of account. For example, a stocks and shares ISA may have to be re-registered if a person is switching to a new provider.

There are ways savers could potentially make the process of transferring an ISA quicker. Discussing the transfer with both current and new providers will likely help to smooth out the process, as will ensuring all paperwork is accurate and up-to-date.

Experts typically suggest busy transfer times, such as the end of the tax year, should be avoided for those hoping to secure a fast transfer.

If you are unhappy with the length of time your ISA transfer has taken, you should contact the ISA provider. If you deem the response unsatisfactory, you can directly contact the Financial Ombudsman Service, with evidence of your transfer request.

Our guide on ISAs vs savings accounts looks at the pros and cons of these types of accounts.

Does an ISA transfer count as a new ISA?

An ISA transfer does not count as a new ISA subscription, and while you may need to set up a new account to move your money to, the savings can also be transferred to an already existing ISA.

The money you have already put into your ISA will remain tax-free even if you transfer it to another ISA, and you can continue to build on the savings you have already amassed.

There isn’t a limit on the number of times a person can transfer an ISA in one year.

Does transferring an ISA affect the annual ISA allowance?

An ISA transfer does not count towards your annual ISA allowance.

If you make a subscription to an ISA during the current tax year, that contribution will count towards your annual allowance of £20,000. This is regardless of whether or not you later transfer it to another ISA. Any transfer you make of the subscription will not reset or increase the limit.

For example, if you deposit £1,000 into an ISA, you will have used £1,000 of the £20,000 allowance, leaving £19,000 available. However, if the money is then transferred to a different ISA, the transfer itself will not count as a new subscription. Therefore, the ISA investor will still have £19,000 of the allowance remaining in the same tax year.

There have also been recent rule changes concerning ISAs that benefit those who wish to hold multiple accounts, and potentially make multiple transfers.

There are four different types of ISA (cash ISAs, stocks and shares ISAs, Lifetime ISAs and innovative finance ISAs) and previously, savers could only put money into one of each type of ISA each tax year.

As of 6 April 2024, you can now open and pay into more than one ISA of the same type in the same tax year, as long as the amount does not exceed the maximum allowance of £20,000. This doesn’t include the Lifetime ISA. You can only pay into one Lifetime ISA each tax year, up to a limit of £4,000 (which is included in the annual ISA allowance).

The change allows "greater flexibility”, explains Andrew Prosser, head of investments at InvestEngine. He adds that it lets savers and investors “try out different accounts if they find a better offer elsewhere, such as lower account fees and the opportunity to invest in different types of funds”.

While transfers between providers do not impact ISA allowances, savers will have to bear potential fees in mind when moving their money. In certain circumstances, there may be a penalty payment or a fee for transferring an ISA, which is why it is important to read the terms set out by both old and new providers.

A new provider may also levy an ongoing charge or a platform fee once the ISA is transferred. Checking this before the transfer process begins could reduce the chances of a nasty surprise later down the line.

We compare cash ISAs versus stocks and shares ISAs in a separate piece.

Can you transfer an ISA to another person?

The simple answer is no. ISAs cannot be transferred to another person.

"The tax benefits for an ISA account are only intended for the person who opened it. If you'd like to give the money in your ISA to someone else, you'd have to close the account and transfer it there,” says Prosser.

There are, however, certain ISA transfer rules that come into play if your spouse or civil partner passes away.

In this case, you can inherit their ISA allowance, but will need to contact the relevant provider for further information.

Since April 2015, people have been able to make use of the ISA benefits belonging to their deceased spouse or civil partner if they passed away on or after 3 December 2014.

This does differ to inheriting the money contained within the ISA, as these funds are allocated to whoever was nominated in the individual's Will.

Can you transfer shares from a general investment account into an ISA?

You can transfer funds from a general investment account (GIA) into a stocks and shares ISA, although it will count towards your annual £20,000 allowance.

HMRC doesn’t allow the direct transfer of investments from a non-ISA account to an ISA, with investments having to be sold first.

However, ISA providers can carry out a ‘Bed and ISA’ transaction. It involves selling shares or funds held within a GIA and then repurchasing them within a tax-wrappered ISA.

The time it takes for a Bed and ISA to complete depends on the provider, but it can be as long as 10 working days.

Can you do partial transfers?

You are allowed to make partial transfers between ISA providers, regardless of when the money was paid into that account. This is following a rule change which took effect in April 2024.

Under the old rules, customers had to transfer all of the funds from one ISA of that type from the existing tax year or nothing at all. The change means you can keep some money with your existing provider and retain that ISA.

What are the benefits of transferring an ISA?

There are several benefits to transferring an ISA. For example, finding a new ISA may help you secure a better return on savings or investments.

Transferring an ISA to another can help you consolidate your ISAs and make it easier to manage them all too.

Additionally, an ISA transfer can help with risk management. For example, cash ISA savers may wish to avoid the eroding impacts of inflation by putting their money into a stocks and shares ISA. This does carry risk, and investors could get back less than they initially put in. However, in the long term, there is potential to grow your money.

In contrast, those looking to substantially reduce risk for short-term goals may wish to transfer money out of investments and into cash savings, particularly if they wish to access their money in the near future.

Transferring a stocks and shares ISA from one provider to another can mean lower ongoing fees like annual platform charges.

Transferring an ISA can bring the perk of better customer service too, if you’re unhappy with your current provider’s level of support.

About £53.9 billion of ISA cash savings held in fixed-term accounts is due to mature by the end of April.

This means those looking for the best rates on ISAs may find themselves left with a poor rate of return on their cash.

Analysis by the consultancy CACI and Paragon Bank reveals that most of the savings (£36.4 billion) maturing between now and April have a term of up to one year.

A further £15 billion is held within cash ISAs that have a term of between 18 months and two years.

Last year was one of the busiest cash ISA seasons on record as savers looked to shield their savings interest from the taxman. Savers pumped in £36.3 billion from the start of April to the end of November, according to the latest official figures.

CACI, which compiles the savings deposits of 40 leading providers of cash savings, says the growth of ISA balances outpaced non-ISA savings accounts last year.

Some people rushed to open or top up a cash ISA last autumn in the lead-up to Labour’s first Budget, as speculation mounted that the popular tax-efficient accounts could be targeted in chancellor Rachel Reeves’s tax raid.

In the end, nothing was announced, and savers can still squirrel away up to £20,000 across cash ISAs and stocks and shares ISAs each tax year.

If your cash ISA is maturing soon, we look at your options: should you pick another fixed-rate ISA, where to find the best interest rate, and why you need to consider inflation as well as tax.

Consider what you want from your savings

If you think you’ll need to access your money within a few months of your cash ISA maturing, you should park the money in an easy-access savings account. This could be another cash ISA, a traditional savings account or even a high-interest current account.

If you’re happy to lock up your money for longer, in exchange for a better interest rate, you can look again at a fixed-rate account.

How long you “fix” your savings for depends on how long you’re prepared to lock your cash away for, and what you think will happen to interest rates.

Today the top one-year cash ISA is paying 4.53%, while the top five-year ISA is paying 4.20%. The gap between the two accounts has narrowed over the past year: in January 2024, the best one-year ISA offered 5.01%, whilst the top five-year cash ISA paid 4.30%.

Anna Bowes, savings expert at The Private Office, a financial planning firm, tells MoneyWeek that the gap between the short term and long-term top cash ISAs has narrowed from 0.71% to just 0.33%, “making it more palatable to consider putting some cash away for longer”.

Tax on savings

Cash ISAs are brilliant because they shield all your money from the taxman and you get to keep all the interest you earn. In contrast, the interest in a non-ISA savings account is subject to tax.

If you’re confident you won’t be liable for any tax, choosing another cash ISA may not be the best choice. It’s worth looking across the whole savings spectrum for the best interest rate instead.

For example, at the moment, the best one-year fixed-rate savings account is from Vida Savings, at 4.77%. This is higher than the best one-year cash ISA on the market, at 4.53% from Castle Trust Bank.

As a reminder, basic-rate taxpayers can earn up to £1,000 of interest income tax-free thanks to the Personal Savings Allowance (PSA). Higher-rate taxpayers have a lower limit of £500, while additional-rate taxpayers don’t have a PSA.

Derek Sprawling, savings managing director at Paragon Bank, comments: “With income tax thresholds frozen until the 2027/28 tax year, increasing numbers of people have become higher-rate taxpayers, meaning their PSA is halved overnight. If you are expecting an increase in your income that may push you into a higher tax band, then an ISA could be a sensible option to shield your savings interest from tax.”

According to Bowes, even if a non-cash ISA pays a higher interest rate, once you factor tax in, the cash ISA could pay you a better net return.

Say you deducted basic-rate tax from the top one-year bond paying 4.77%; the net rate then becomes 3.82%. In the meantime, the top one-year cash ISA is paying 4.53% tax free. “So, on £20,000 you would take home £764 from the bond, but £906 from the ISA. And this is why cash ISAs have become so popular once again,” says Bowes.

Act fast to get the best rates

If you want to open another cash ISA, make sure you pay attention to the various rules. One of the most important is the £20,000 ISA allowance. This is spread across all your ISAs, including lifetime ISAs and stocks and shares ISAs, and runs from 6 April to 5 April. In a nutshell, you mustn’t pay in more than £20,000 each tax year.

Any unused allowance in the tax year will be lost as unused allowance cannot be rolled over into the next tax period. In other words, it’s use it or lose it. If your cash ISA matures before 5 April this year, you may want to act fast and open a new ISA and contribute any remaining ISA allowance before the new tax year starts.

According to Sprawling, you should also act early as the run-up to the end of the tax year (so-called ISA season) is extremely busy for savings providers, with high volumes of account openings and transfer requests.

“To better handle the high volumes, savings providers can take popular products off the market or make certain products available only to existing customers. Therefore, if savers are thinking of opening a new ISA this tax year or transferring an existing ISA balance to a new account, don’t leave it too late,” he advises.

Impact of inflation on savings

You may be disappointed to find that if your one-year cash ISA is about to mature, the interest rates available today are likely to be a little lower than what you were earning.

But if inflation continues to be low, the real returns are likely to be very similar, says Bowes.

She explains that in January 2024 the top one-year ISA was paying 5.01% but inflation stood at 4% and has been on average 2.66% over the last 12 months. On a deposit of £20,000, after 12 months although the total balance including accrued interest would be £21,002, “the real value after the effect of 2.66% inflation would be £20,458, importantly still keeping up with the cost of living.

“However, today, although the best one-year ISA is 4.53%, if inflation is close to 2% for the next 12 months, whilst the total balance including interest would be £20,906 in a year’s time, the real return would be £20,496, actually slightly better.”

She adds: “This illustrates the importance of shopping around for the best rates, to put as many pounds in your pocket as possible, especially while the rates pay more than inflation. Make hay while the sun shines!”

The chancellor will deliver her second Mansion House speech this evening (15 July), when she is expected to launch the government’s long-awaited pensions adequacy review.

Pension contribution rates could form part of the review in an effort to boost savers’ retirement pots.

The minimum contribution under auto-enrolment rules is currently 8% of employees’ eligible earnings with 3% coming from employers, however experts believe this is not enough for a comfortable retirement.

As well as workplace pensions, the review is expected to focus on the state pension and retirement savings among the self-employed.

Rachel Vahey, head of public policy at AJ Bell, comments: “After a bruising few weeks, the chancellor will be hoping to reset the agenda at the Mansion House speech, likely turning her attention to pensions again and trying to persuade voters this government can plot a path towards a more prosperous retirement for millions of Brits.”

Further details on a rumoured cut to the cash ISA limit had also been expected in the speech, but reports now suggest Reeves will delay cash ISA reform after backlash from consumers, banks and building societies.

The rationale behind a cut (possibly to as low as £4,000 or £5,000) was to encourage more people to invest in the UK stock market.

Reeves is still likely to promote this goal during her speech, but rather than a cash ISA cut, she is expected to announce a campaign to educate the public about the merits of investing.

On a separate note, the chancellor is also expected to announce plans to loosen financial regulation. This could include reforms to the senior managers and certification regime – a set of accountability rules introduced after the Global Financial Crisis.

The rules hold senior managers responsible for regulatory breaches in their area of responsibility, if they have failed to uphold their duties. They can sometimes be liable even if they were not personally involved or implicated.

Some in the City argue the rules have become too burdensome. Reeves will set out plans to cut the burden of the regime by half, according to the Financial Times. This could include making it quicker and easier to appoint senior managers.

Reports also suggest Reeves will reiterate her fiscal rules during the speech, telling industry participants that she will not put the UK’s economic stability at risk. The current rules mean the chancellor cannot borrow to fund day-to-day spending, and that she must have debt falling as a proportion of GDP by 2029/30.

Reeves has come under pressure to loosen the rules in recent weeks, as high borrowing costs, weak economic growth and series of policy U-turns have made tax hikes more likely this autumn.

What is a Mansion House speech?

The Mansion House speech is an annual address given by the chancellor. Last year, Reeves delivered her inaugural address on 14 November.

The speech takes place at Mansion House in London, which is the official residence of the City of London’s Lord Mayor. Historically, it has been delivered to a room full of senior bankers and company bosses at the Annual Financial and Professional Services Dinner.

The speech is often used to sketch out future plans for the industry and is closely watched for clues on the government's next steps on regulation.

Last year, Reeves announced plans to merge the UK’s 86 local government pension schemes into more efficient megafunds.

She also spoke about addressing a culture of excessive risk aversion, and wrote to regulators after the speech to ensure a greater focus on supporting economic growth in their remits.

What could Reeves announce in the 2025 Mansion House speech?

The pensions adequacy review is likely to be a major feature of the Mansion House speech this year.

Pensions have been a big focus for the government since its election win, with Reeves looking to boost savers’ readiness for retirement while also using pensions as an engine for economic growth.

A pensions investment review has already been conducted, concluding earlier this year. The review focused on tackling fragmentation in the pensions market, and boosting investment in productive assets like infrastructure and private equity.

The government will turn its attention to retirement adequacy next, as it seeks to address systemic issues that mean millions are under-saving for retirement.

Timescales are unclear but pensions minister Torsten Bell has said auto-enrolment rates will not rise this parliament, suggesting any reforms could take place over the longer term.

The review could also look at the state pension, which has become increasingly expensive in recent years thanks to an ageing population and the state pension triple lock. The government has promised to keep the triple lock for the rest of this parliament, though, meaning it looks safe for now.

We can also expect to hear more about how the government plans to direct more money away from cash savings and into the stock market. While a reduction in the cash ISA limit seems to be off the cards for the time being, the chancellor is expected to outline other ways of boosting Britain’s stock market.

Reeves could look to achieve this through a public campaign that dispels some of the myths about investing – part of a cultural shift to get cash savers putting their money in UK companies.

The push will come after the Financial Conduct Authority (FCA) revealed “once in a generation” advice changes last month. The shift could result in millions more people getting help managing their money without having to pay for regulated advice.

City bosses are also urging Reeves to focus on cutting the cost of investing, namely removing stamp duty when shares are bought.

Business lobby group CBI, investment platforms including Hargreaves Lansdown and Interactive Investor, and business leaders from Shell, HSBC and AstraZeneca are calling for “bold action” to bolster the London Stock Exchange as a global capital markets hub.

They want the government to abolish the 0.5% tax on shares. However, this seems to be a wish list from the industry, and there are no signs the government is considering the move – not least because it will cost billions of pounds a year.

Finally, Reeves is expected to set out the government’s financial services growth and competitiveness strategy during her speech. This will involve “building on our strengths in areas including capital markets, insurance and asset management,” Reeves told industry participants at a conference in April.

The strategy will also focus on “supporting firms to innovate by ensuring they can access and develop the talent they need, and promoting the UK as a great place to do business globally”.

Cash savers have enjoyed rising interest rates over the past two years, with savings rates hitting a 15-year high.

This has encouraged record amounts of money to go into cash ISAs. Analysis by the Bank of England shows net inflows of £12.3 billion went into cash ISAs in April 2024, the highest inflow since 1999. This was followed by a record month of net inflows for May at £4.2 billion, the highest May figure on record.

But while the returns on cash ISAs and savings accounts have increased, they have been no match for stocks and shares ISAs investing in UK or global equities.

This is the finding of recent analysis by investment platform AJ Bell on behalf of MoneyWeek. This reveals that while the average cash ISA paid 2.7% last year, a stocks and shares ISA investing in global equities returned 12.7%. Meanwhile, an ISA invested in a UK equity fund returned 7.4% on average.

When inflation is taken into account, cash ISA customers were sitting on a loss, with a real return of -1.2%.

“Cash rates are much better than they were, but despite rising interest rates the average cash ISA has still returned much less than the stock market over the last year, and has actually gone backwards once inflation is factored in,” comments Laith Khalaf, AJ Bell head of investment analysis.

Over longer periods, the gap between cash returns and investment returns becomes much bigger. 

Over five years to the end of 2023, the average cash ISA returned 5.5%. But a stocks and shares ISA holding the average global equity fund grew by 65.7%. An ISA holding the average UK equity fund returned 31.6%. 

Over 20 years, the average cash ISA returned 53.4% to savers, while an investor in the average global equity fund would be sitting on a massive 395.8% return. Someone holding a typical UK equity fund would have a 257% return.

How have these figures been calculated?

We asked AJ Bell to crunch some figures showing how a typical cash ISA would have performed against the average stocks and shares ISA.

We used the average cash ISA as recorded by the Bank of England. Of course, some savers would have found a higher-paying cash ISA than 2.7%, the average rate for 2023. According to our best-buy tables, the top-paying easy-access cash ISA currently pays 5.2%. 

But, some cash ISA customers would have had a lower rate than 2.7%, especially if they hadn’t looked at their account for a while and switched to take advantage of a better deal.

In terms of stocks and shares ISAs, AJ Bell looked at global equity funds and UK equity funds, as it said “these are by far the most popular two sectors held by UK retail investors”.

How cash ISAs and stocks and shares ISAs compare

While most of us know that investments generally perform better than cash over long timeframes, it’s surprising that cash ISAs underperformed last year given the backdrop of rising interest rates. 

Sources: AJ Bell, Bank of England, ONS, FE total return data to 31 December 2023.

It’s worth noting that investors who chose to focus on one region or sector may have had a different experience last year, and may be sitting on some painful losses. 

This would have been the case for someone who invested solely in the China/Greater China fund sector. According to Moneyfacts, this was the worst-performing stocks & shares ISA fund sector last year, falling by more than 30%. 

The commodities and natural resources sector also fared badly, falling by almost 13%.

How inflation erodes returns 

Inflation may be coming down from its double-digit peak - it was 2.0% in the 12 months to May - but it can still erode returns.

“If you hold large sums of cash for long periods you open yourself up to the risk of inflation eroding your spending power, and falling behind those who invest in the stock market. The stock market has ups and downs so you need to be willing to ride out the rough with the smooth, but the quid pro quo is that you are likely to beat cash and inflation in the long run,” says Khalaf. 

He adds: “Data from Barclays going back to 1899 shows that over a 10-year period UK shares have beaten cash over 90% of the time. Moreover, cash produced negative real returns in six of the eleven decades between 1912 and 2022.”

What’s best for me: cash ISA or stocks and shares ISA? 

While our analysis shows that you could have grown your money much more with a stocks and shares ISA over different time periods, the truth is you need to be comfortable with the risks of investing, and also consider your goals and time frame. 

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, says: “When it comes to choosing between a cash ISA and a stocks and shares ISA, deciding where funds should be placed should be guided by the time horizon and when you need the money rather than how the markets or savings rates are performing at a particular point in time.”

Money that is needed in six months or 12 months’ time for a short-term savings goal, such as a holiday, wedding, or big-ticket purchase, would be better placed in an easy-access cash ISA to ensure you can withdraw it quickly when needed.  

“But funds not needed for five years or more - whether to pay for retirement, a child’s university costs or a deposit on a first home - can benefit from the compounding effect that comes with investing money over the long term,” says Haine.

She adds that with interest rate cuts expected this year, savings rates are likely to retreat in the coming months, and so “hunting out the best [interest rate] for those with short-term savings goals will remain key, while those with long-term goals should stick with a stocks and shares ISA”.

You can choose both types of ISAs, dividing the £20,000 tax-free annual allowance as you wish. For example, you could pay in £5,000 to a cash ISA and contribute £15,000 to a stocks and shares version.

Don’t forget to check your investment holdings - or your interest rate if you have a cash ISA - to make sure it’s competitive. 

In brief:

Cash ISAs from less well-known banks and building societies are offering interest rates higher than the current rate of inflation. When MoneyWeek researched rates in July 2026, it found the best easy-access account allowing penalty-free withdrawals offered 4.62% interest. Savers who don’t need to access their cash can earn 4.7% by placing it in a one-year fixed ISA and 4.66% in a two-year or three-year fixed ISA.

The best cash ISAs are currently offering inflation-busting rates of up to 4.7%. For savers who are happy to lock their money away for a set period, fixed-rate cash ISAs can be a good place to start.

Every adult in the UK gets a £20,000 tax-free Individual Savings Account (ISA) allowance each tax year. We've rounded up the best cash ISA rates currently on the market.

The best cash ISAs in June 2026

The best easy access cash ISAs

Easy access cash ISAs do what they say on the tin, letting you access your savings without penalty. You can currently earn up to 4.62% with this type of ISA.

The best one-year fixed rate cash ISAs

If you’re happy to lock your cash away without any withdrawals for a year, then you're guaranteed returns of up to 4.7% until your fixed term ends.

The best two-year fixed rate cash ISAs

If you have savings you’re happy to lock away for at least two years, you’ll find rates on cash ISAs of up to 4.66%.

The best three-year fixed rate cash ISAs

If you wish to lock away your cash for at least three years, the best fixed rate cash ISAs are offering up to 4.66%.

What you need to know about the best cash ISAs

When choosing a cash ISA, there are two main factors to look out for: how long you are comfortable locking your cash up for and the interest rate.

• Easy access ISA accounts allow you to withdraw funds without incurring a penalty.
• Fixed-rate cash ISAs offer a fixed rate of return – usually higher the longer you are prepared to lock your money away. Note: if you withdraw money before the end of the term, then you are likely to be penalised, usually with a reduction in the rate of interest.

Generally speaking, the longer you leave the money untouched, the more interest you can earn. Many ISAs are classed as ‘flexible’, meaning you can replace any funds you withdraw in the same tax year without affecting your annual ISA allowance – which is currently £20,000.

However, make sure you're making your money work hard for you, and earning inflation-beating savings rates on your cash.

James McCaffrey of TotallyMoney says: “If you’re sitting on savings, check the rate your provider is paying, and if it’s below 4%, then consider moving your money. It’s as simple as filling out a form, and you can transfer all or part of your savings, with cash ISA transfers taking no longer than 15 days."

We have an ISA guide to help you learn everything you need to know about how they work, how much you can pay in, what investments you can hold, and how to transfer one.

With the Bank of England set to continue cutting interest rates, it appears time is now short if you want to secure an inflation-busting savings account. So, how do National Savings & Investments (NS&I) savings rates compare to the rest of the market?

NS&I is a government-backed savings bank. It primarily exists to raise money for the Treasury, but also to provide value for money to taxpayers and savers.

It’s best known best for its Premium Bonds, which offer cash prizes in a monthly draw. While the returns offered by this savings product aren’t guaranteed, NS&I has several accounts and bonds that do provide certainty for your money. For example, British Savings Bonds.

So, with interest rates potentially going down even further in the near-future, how do NS&I’s savings accounts compare to the best savings rates on the market? We’ve crunched the numbers.

NS&I savings: how do its interest rates compare?

To map out how NS&I stacks up compared to the rest of the savings market, MoneyWeek has mapped out the easy-access, ISA and bond products they offer. We’ve also included the current best rates across each category.

Easy-access accounts

NS&I rates:

• Direct saver - 3.75% (variable)
• Income Bonds - 3.75% (variable)

Market-leading rates:

• Cahoot Sunny Day Saver - 5% (variable)
• Atom Bank Instant Saver Reward - 4.85% (variable)
• Principality BS Online Bonus Triple Access - 4.85% (variable)

ISAs

NS&I rates:

• Direct ISA - 3% (variable, also easy-access)
• Junior ISA - 4% (variable)

Market-leading rates for adult cash ISAs:

• Trading 212 Cash ISA - 5.17% (variable)
• Moneybox Cash ISA - 5.17.% (variable)
• Plum Cash ISA - 4.68% (variable, interest drops based on amount saved and number of withdrawals in a year)

Market-leading JISA rates:

• The Stafford Building Society - 4.75% (variable)
• Coventry Building Society - 4.7% (variable)
• The Family Building Society - 4.6% (variable)

Bonds

NS&I rates:

• Two-year British Bonds - 4.1% (fixed)
• Three-year British Bonds - 4% (fixed)
• Five-year British Bonds - 3.9% (fixed)
• Three-year Green Savings Bonds - 2.95% (fixed)

Market-leading two-year rates:

• SmartSave 2 Year Fixed Rate Saver - 4.61%
• Hodge Bank 2 Year Fixed Rate Bond - 4.6%
• Hampshire Trust Bank 2 Year Online Fixed Saver - 4.51%

Market-leading three-year rates:

• JN Bank - 4.6%
• SmartSave - 4.55%
• Oxbury Bank - 4.54

As you can see, NS&I is not offering market-leading rates on any of its savings products. Here’s a rundown of the advantages and disadvantages of saving with the bank.

What are the advantages of NS&I?

There are three big benefits of saving with NS&I. First, its savings accounts often have higher maximum balances than other banks and building societies.

For example, savers can hold up to £2 million in NS&I’s easy-access Direct Saver account. At the moment, this variable rate account offers 3.75% interest on the full amount sitting in this account.

Although this is hardly a market-leading rate, the maximum balance outshines most competitors.

So, if you have a big pot of cash that you want to grow (and, in this instance, don’t mind paying tax on), an NS&I account could be ideal.

The second advantage is that NS&I is backed by the government. This means NS&I cannot go bust and you can guarantee that 100% of your money is safe. Much of the rest of the market is covered by the Financial Services Compensation Scheme (FSCS), which only guarantees compensation of up to £85,000 per person if a bank goes bust. You should always check if a bank is covered by the FSCS before saving your money with them.

Third, if you've maxed out your ISA allowance and are worried about paying tax on your savings interest, NS&I has a unique tax-free savings product - Premium Bonds. If you win, the cash you receive is completely tax-free.

Of course, you need to win to get any sort of return on your money. But whatever you stow away in Premium Bonds is completely shielded from HMRC.

Every other non-ISA savings account in the UK is subject to tax if you exceed your annual allowance LINK. Allowances are particularly small for higher and additional-rate taxpayers, so it’s worth finding out how to avoid the savings tax trap.

 What are the disadvantages of NS&I?

One of the drawbacks with NS&I is that it rarely offers the highest saving rates. The reason for this is that it has to balance the interests of savers, taxpayers and the government. So, you cannot rely on NS&I to be market-leading.

Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown, says: “For the vast majority of the time, NS&I applies the time-honoured rule that it wants to offer something in the middle of the pack, so it attracts enough cash, but without paying over-the-odds for it.”

Someone choosing NS&I’s Direct ISA, which currently has a rate of 3%, would be sacrificing an extra 2.17% of interest by not picking the top cash ISA on the market (Trading 212, 5.17%).

Very occasionally, NS&I does offer a big-hitting rate. Its 6.2% one-year fixed bond was chart-topping until its withdrawal after just five weeks in late-2023. So, MoneyWeek would advise acting quickly to snap up any market-leading products from NS&I, as they’re unlikely to hang around for long.

Another disadvantage of NS&I for some savers is that it does not have a physical presence on the high street. Additionally, some NS&I accounts are online-only. While bank and building society branches are closing at a rapid rate, most major brands are likely to have at least some sort of presence in your area. And if they don’t, you can often bank with them over the phone or through the post.

If you have some spare cash lying around, the lesson of old would be to put it away in some form of savings account, but rampant inflation is undermining the real returns cash ISA customers can achieve. So, are cash ISAs worth it?

According to analysis from Quilter, cash ISA savers are realising a more than 6% loss on their savings over the last 12 years, due to the gap between savings rates and inflation. 

While this still represents a significant loss, the picture has improved from the end of last year when savers were suffering near double-digit losses. 

Are cash ISAs worth it?

When CPI inflation hit 11.1% in the 12 months to October 2022, the monthly interest rates available on cash ISA deposits, including unconditional bonuses, stood at just 1.69%, meaning cash ISA savers suffered a real terms loss of 9.41%.

Even in March 2023, savers bore an 8.15% real terms loss.

July 2022 marked the highest loss in over a decade when savers faced a decline of 9.42%. 

This was the highest real terms loss on cash ISA savings in over a decade, coming in more than triple the previous highest loss of -2.81% in November 2017.

“Although the picture has improved in certain corners of the market even savers on the very best rates will be realising a real term 3% loss,” says Rachael Griffin, tax and financial planning expert at Quilter.

Cash ISAs have long been an “easy way to save money with comparatively little risk,” she adds, but they still get “ravaged by the impact of inflation.” 

But with inflation now hitting 30-year highs and interest rates on cash savings still lacklustre, now may be the time to consider an alternative way to achieve above-inflation returns.

How can I beat inflation?

According to Quilter’s sums, someone who invested £10,000 in a cash ISA in January 2011 would currently have £11,472.09. Adjusted for inflation, this is just £8,041. In contrast, a £10,000 investment in a stocks and shares ISA, held in the IA Global Equity index over the same period would be worth £26,956 or £18,901 after inflation. 

And while these figures do not account for charges that may reduce the final sum, they are indicative of the cash erosion many ISA holders face amid the high-inflationary environment.

According to the latest HMRC data, around 11.8 million Adult ISA accounts were subscribed to in 2021 to 2022 of which 920,000 were cash ISAs.

In recent weeks, savings rates have crept up as competition heats up between banks. While many high street banks had to be spurred by the Financial Conduct Authority to up savings rates, other banks have been offering enticing rates.

The best 1-year fixed-rate account currently stands at 6.1%, while a two-year fix will net you 6.15%. 

Meanwhile, NS&I today upped rates on its fixed-term products - the interest rates paid on NS&I’s fixed-term Guaranteed Growth Bonds and Guaranteed Income Bonds are increasing to 5.00% for new customers, up from the existing 4.00% and 3.90% respectively.

But are these savings methods enough to beat inflation? Quilter’s Griffin says: “If you won’t be needing the money in the next few years, investing could help make your cash work harder, and has a better chance of delivering an above-inflation level of return over the length of the investment although there are still risks associated investing too.”

If you're looking for the best savings rates, you can earn up to 5% with the top easy-access account, 4.85% with a one-year fixed bond, 8% with a top regular saver or 4.72% with a cash ISA.

While savings rates are lower than they were a few years ago, you can still find inflation-beating deals on the market and make your money work hard for you.

You shouldn’t judge a savings account solely by its top rate, but rather check whether it fulfils your needs – both short-term and in the long run. This includes looking at whether there are any restrictions on withdrawals or bonus rates, which could mean the rate quickly drops when the boost comes to an end.

The Bank of England held interest rates in April, so there's a chance that the top savings deals start to tumble. In that case, if you want a competitive rate on your cash, you may need to act quickly.

Below, we look at the top rates for notice savings, easy-access savings, fixed bonds, regular savings and cash ISAs.

Note:
All the banks we mention in this article are protected by the Financial Services Compensation Scheme, meaning up to £120,000 of your savings are protected should a bank or other financial services company go out of business.

Best notice savings rates

The best easy-access savings rates

Best regular savings accounts

The best one-year fixed rates

The best two-year fixed rates

The best three-year fixed rates

The best easy access cash ISAs

The best one-year fixed rate cash ISAs

The best two-year fixed rate cash ISAs

The best three-year fixed rate cash ISAs

Types of savings accounts

There are several different types of savings accounts to choose from.

• Easy access savings accounts: These allow you to take your money out as and when you please. However, some come with restrictions on withdrawals, which can mean you can’t immediately access all of your money in the account in an emergency. For instance, you may only make same-day withdrawals if done before a particular timeframe, or you may only be permitted a limited number of withdrawals before the rate on your account drops.
• Fixed-rate savings accounts: These come with restrictions, so you can’t access your cash until the account reaches maturity; otherwise, you may face a hefty penalty. You usually earn more interest if you are willing to lock your cash away for a fixed period, but keep in mind that this also takes away flexibility should you need the cash suddenly. Here's how much you should have in emergency savings.
• Regular savings accounts: Regular savers reward customers who are ready to commit to a consistent savings habit. These are usually the top-paying savings rates in the market, but can also come with withdrawal restrictions and are usually fixed for a certain time. We look at whether easy access or regular savings accounts give you the best return in a separate piece.
• Individual savings accounts (ISAs): These are a type of ‘tax wrapper’ into which you can put cash or investments. Currently, you have a £20,000 limit on how much you can set aside into an ISA. We look at how many ISAs you can have in a separate guide.

If you aren’t saving in this type of account, you could be forced to pay tax on interest. We look at ways to shelter your money from the savings tax trap.

If you’re looking to switch your current account, take a look at our guide to the best bank switching offers, where you can earn as much as £250.

What is the maximum amount protected by the Financial Services Compensation Scheme (FSCS) in the UK?

The Financial Services Compensation Scheme (FSCS) protects up to £120,000 of your savings and investments if a financial institution goes bust.

Previously, the limit was £85,000 for sole accounts and £170,000 for joint accounts, but it was raised to £120,000 and £240,000 respectively in December 2025.

All accounts listed above are eligible for FSCS protection. You can check if your account is protected online on the FSCS website.

What is the current Bank of England base rate?

The current Bank of England base rate is 3.75%. Interest rates were held at 3.75% in June. The next decision from the Bank of England will be announced on 30 July 2026.

The central bank’s Monetary Policy Committee meets eight times a year to set rates.

This article is updated regularly to bring you the latest on the best savings rates. Sign up for our newsletter to stay up-to-date on all the latest deals for cash savings.

An ongoing freeze to tax bands and allowances is putting savers at greater risk of being taxed on their savings, and further challenges lie ahead for savers.

In the 2025 Autumn Budget, chancellor Rachel Reeves extended a freeze on income tax thresholds to 2030/31, which will mean more people are dragged into higher tax brackets as incomes rise. Furthermore, from April 2027, the tax rates on savings income will be hiked, and under 65s will be capped at putting £12,000 a year into cash ISAs (rather than up to £20,000).

Some 2.64 million people are expected to pay tax on their savings in the 2025/26 tax year, according to HMRC data obtained by AJ Bell through a Freedom of Information request in August 2025. Just 647,000 were affected in 2021/22.

This includes a projected 1.15 million basic-rate taxpayers and 897,000 higher-rate taxpayers.

It means around one in 25 basic-rate taxpayers and one in eight higher-rate taxpayers face paying tax on their savings this tax year, AJ Bell said.

Why are more savers facing tax on savings interest?

Savings accounts became much more attractive in recent years, following 14 consecutive base rate hikes between December 2021 and August 2023 and lower levels of inflation. Interest rates are now on a downward trend, but the average easy access savings account at the end of January 2026 still paid 2.44% – 1.85 percentage points higher than the 0.59% average rate paid at the start of January 2020.

Higher interest rates, combined with frozen tax allowances, leaves more and more savers at risk of being taxed on their savings interest.

While you can earn some interest in traditional savings accounts without being taxed, cash ISAs are a tax-free savings vehicle, meaning they are a useful way to protect interest on savings from the taxman.

These tax-free wrappers had fallen out of favour in recent years as paltry interest rates across all types of accounts meant many savers found themselves well within the personal savings allowance threshold.

Laura Suter, director of personal finance at AJ Bell, told MoneyWeek: “For years, most savers didn’t give a second thought to paying tax on their interest – rates were low and the personal savings allowance offered a generous cushion. But the landscape has changed rapidly.

“A combination of rising interest rates, frozen tax thresholds, more people being pushed into higher tax bands, and years of cash ISAs being overlooked means many are now being pulled into the tax net for the first time.”

Tax on savings: allowances

Taxpayers can use their personal allowance (typically £12,570) to earn interest tax-free if it hasn't been used up on other forms of income, such as wages or a pension. If your adjusted net income is more than £100,000, your personal allowance reduces by £1 for every £2 above this threshold, so you’d lose it entirely if your income is £125,140 or more.

Some people can also earn up to £5,000 of interest tax-free, known as the starting rate for savings. This allowance reduces by £1 for every £1 of other income above the personal allowance. People with income of £17,570 or more will not be able to get this allowance.

The personal savings allowance protects some savings interest from the taxman.

Basic-rate taxpayers (taxable income of £12,571 to £50,270) can earn £1,000 in interest tax-free via this allowance, while higher-rate taxpayers (taxable income of £50,271 to £125,140) have a personal savings allowance of £500. Additional-rate taxpayers (taxable income over £125,140) are not eligible for any personal savings allowance, meaning every penny they earn in interest is taxable.

Some £516 billion held in 5.2 million non-ISA adult savings accounts would generate enough interest to breach the basic-rate taxpayer’s personal savings allowance (PSA), according to analysis of CACI data by Paragon Bank in November 2025.

Cash ISA vs traditional savings accounts: Which pays more?

The interest rates offered on the best savings accounts are substantially higher than the rates seen five years ago, with the top rate for a one-year fixed savings account now standing at 4.4% AER/gross. The highest-paying easy access account (including bonus) pays 4.5% AER/4.41% gross. Rates are according to Moneyfactscompare.co.uk and correct at the time of writing.

The best cash ISA rates also pay above 4% – the highest-paying one-year fixed ISA offers a rate of 4.15% AER/gross while the top variable cash ISA pays 4.39% AER/4.3% gross.

The number of savings accounts available (excluding cash ISAs) stood at 1,661 in January 2026 – up from 1,542 the year before. Meanwhile, the number of cash ISAs on the market was 657, compared to 574 in January 2025, according to the Moneyfacts UK Savings Trends Treasury Report.

The average easy access savings account (excluding ISAs) paid 2.48% this January, down from 2.89% in the same period last year. The average easy access cash ISA rate has also slipped year-on-year – it’s now 2.69%, down from 3.03%.

We look at what savers need to consider when deciding between a traditional savings account and an ISA.

Benefits of a traditional savings account

You can earn interest on cash held in a traditional savings account, and while this isn’t tax-free, there are allowances available, so you can earn some interest without paying tax on it.

Sometimes, the rates on the best savings accounts are higher than those paid by tax-free cash ISAs, making them seem more attractive.

Unlike ISAs, traditional savings accounts do not tend to have a cap on how much you can save in them.

You can usually put in as much as you like within the account, although the Financial Services Compensation Scheme only protects the first £120,000 saved in each financial institution in the event that it goes bust. You can check if your savings – whether they’re in a traditional account or a cash ISA – are protected by the FSCS using their bank and savings protection checker.

Downsides of traditional savings accounts

Once you start to build a larger savings pot ‒ particularly if you are a higher-rate taxpayer ‒ you’re far more likely to have to hand over some of the earnings to the taxman.

MoneyWeek has calculated that higher-rate taxpayers would start paying income tax on their interest once they hold just over £11,100 in the current top easy access account, assuming it paid 4.5% for the year. Basic rate taxpayers could save just over £22,200 in an account with this rate before their savings interest becomes subject to tax.

If interest rates were to rise, more savers with traditional savings accounts would find their returns are taxed as they would earn above the personal savings allowance.

Suter, from AJ Bell, warned many won’t realise they’re breaching the tax-free limit.

“Self-assessment filers will need to declare any interest earned, but for those on PAYE, HMRC will collect the data directly from their payslip by adjusting their tax code,” she said.

“That can lead to a nasty surprise when people see their take-home pay suddenly fall.”

Benefits of an ISA

ISAs let you save or invest, entirely tax-free.

There is an annual ISA allowance though ‒ currently set at £20,000 for the 2025/26 financial year.

There are various types of ISA available, but the annual ISA allowance spans deposits into all of these options per tax year.

Cash ISAs

If you’re a saver who wants some low-risk certainty then you can put your money into a cash ISA, which works exactly like a traditional savings account except the interest is guaranteed to be tax-free.

Stocks and shares ISAs

If you’re happy to accept a little more risk, in return for the chance of higher returns, then you could opt for a stocks and shares ISA.

The types of investment that can be held within a stocks and shares ISA varies based on the provider, but it allows savers to enjoy every penny of the returns generated from individual stocks, funds, bonds and the like in their ISA without being subject to dividend tax or capital gains tax.

Lifetime ISAs

The Lifetime ISA (LISA) is another type of ISA, which is aimed at two distinct types of saver: those looking to build up a deposit to use when purchasing a house, or those who want to save for retirement.

Eligible savers can deposit up to £4,000 per tax year into a LISA – this limit counts towards the £20,000 annual ISA allowance.

The money you save in a Lifetime ISA is eligible for a 25% bonus from the government each year, with the bonus capped at £1,000. You must be under 40 to open a Lifetime ISA and if you’re using a Lifetime ISA to save for retirement you won’t be able to access the cash until age 60 without incurring a penalty.

The chancellor announced the government will publish a consultation in “early 2026” on the implementation of a new, simpler ISA product to help first-time buyers purchase a home. This would be offered in place of the Lifetime ISA.

Innovative finance ISAs

Another form of investment ISA available is the Innovative Finance ISA, which can be used to invest in alternative assets like peer-to-peer loans (or crypto ETNs from April).

Junior ISAs

A Junior ISA (JISA) is a tax-free savings account specifically for children.

Parents can put money aside for their children in a Junior ISA, but the money belongs to the child. The child can take control of the account when they turn 16 but can’t withdraw from it until their 18th birthday.

There is a different limit for Junior ISAs – up to £9,000 can be deposited in Junior ISAs per tax year.

There are two types: a cash Junior ISA and a stocks and shares Junior ISA. A child can have one or both of these types.

How much can you put in a cash ISA?

You can deposit up to £20,000 into ISAs each tax year, but you can also transfer ISA savings. You could benefit from moving ISA savings from previous years to ISAs with a higher interest rate, if the account allows transfers. By transferring the ISA savings, you are preserving the tax-free status.

Any unused ISA allowance cannot be carried over to future years. So, if you put less than £20,000 in any tax year into ISAs, that unused allowance is gone forever. This could be frustrating if you suddenly come into a windfall – for example, a large bonus or an inheritance.

From 6 April, 2027, under 65s will only be able to put £12,000 into cash ISAs annually. This is included within the overall £20,000 ISA limit. The annual subscription limit for Lifetime ISAs will remain at £4,000.

If you are 65 or older, you can continue to put up to £20,000 into a cash ISA each tax year, if you wish to.

Previously, you could only open one of each main type of ISA in any one tax year, but this rule changed as of April 6, 2024.

Now, savers can open and pay into multiple of the same type of ISA, for example open more than one cash ISA, within a tax year.

Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said cash ISAs are hugely popular among savers, and they are “one of the best options for those wanting to avoid an unexpected tax bill”.

“The upcoming 2026/27 tax year marks the final period for savers under 65 to maximise their £20,000 cash ISA allowance, which could lead to a very competitive ISA season, but the ‘rate war’ peak isn’t typically until around March and April,” she said.

“This may encourage some savers to adopt a ‘wait-and-see’ approach, however with savings rates anticipated to fade this year, trying to time the market could leave them worse off in real terms. To avoid missing out, savers should regularly review their rates over the coming months to ensure they’re getting a fair deal.”

Downsides of an ISA

While the returns from ISAs are free of tax, that doesn’t necessarily mean that you will be better off by using them. As with general investment accounts, if you opt for an investment ISA (the stocks and shares ISA or the innovative finance ISA), there is the risk that the assets you invest in could lose value. As a result, you may end up with less than you started with.

Moving money between ISAs can also be challenging. Not all ISAs accept inward transfers. This means that you cannot move money that’s already held in an ISA into them. This can mean limited choice when it comes to finding a new home for your savings. What’s more, the money must be transferred directly from one ISA to another, in order to retain its tax-free status.

If you withdraw the savings from an ISA, even if it’s to subsequently deposit it into another ISA, it will count towards the £20,000 annual ISA allowance. ISA transfers do not count.

Traditional savings accounts and ISAs

There is nothing to stop savers from using both ISAs and traditional savings accounts. In fact, for some savers, this will make sense.

For example, if you have used the entirety of your £20,000 annual ISA allowance, then that does not have to be the limit to your savings. Once you hit that threshold you can continue to save money in a traditional savings account for the rest of the tax year.

“Traditional savings accounts tend to offer better rates, which can be crucial when savers are trying to grow their cash faster than inflation,” Eastell said.

“These may be a more suitable option for those that are unlikely to find themselves breaching their personal savings allowance. Ultimately, savers should have a clear understanding of their tax implications to help decide which account may suit their needs.”

It also might make sense to divide the money you’re saving ‒ based on whether you need to access it in the short or long term, and the interest rates available on different accounts.

An Individual Savings Account (ISA) is a tax-efficient vehicle to grow your savings and/or invest in stocks and shares.

Investors and savers can shield money from the taxman with these types of accounts, and their usage is on the rise.

The number of UK adults adding money into all adult ISAs reached 15 million in 2023/24, up from 12.4 million in the previous tax year, the latest figures from HMRC show. It marks the first time the figure exceeded 15 million in 12 years.

Holding savings in ISAs has been particularly important since 2022, when interest rates started rising rapidly. Higher interest rates have led to bigger returns on savings which increase the likelihood of having to pay income tax.

However, some changes to ISA rules are looming, which could make it difficult for savers to shield their cash from the taxman.

We explain everything you need to know in our ISA guide, including how they work, what sort of investments you can hold in a stocks and shares ISA and how to transfer an ISA.

What are the main types of ISA?

There are four main types of ISA: cash, stocks and shares, innovative finance and Lifetime ISAs (LISAs).

You can open one of these accounts if you’re 18 or older, although you can’t open a LISA if you’ve turned 40.

Help to Buy ISAs fall under the cash ISA category, but since November 2019, it’s not been possible to open a new account. Anyone who opened an account before this date and still has it open can pay into it until November 2029 and has to claim the bonus by November 2030.

You can also open Junior ISAs (JISA) for children aged under 18.

We explain each type of ISA in more detail below.

ISA rules: How ISAs work

ISAs are a tax-efficient way to save or invest. You don’t pay income tax, dividend tax or capital gains tax (CGT) on any of the returns you generate from your ISA holdings: effectively, everything within them is shielded from the taxman.

The amount you can contribute into an ISA is limited to £20,000 per year (across adult ISAs).

That £20,000 allowance can be spread across as many adult ISAs as you want, but you can’t exceed it in total.

For example, you could save £5,000 into a cash ISA, then put £15,000 into a stocks and shares ISA. The annual allowance is just an upper cap on contributions – you don’t have to max it out every year.

Any allowance you don’t use in a given tax year is lost; you can’t carry your allowance over into the next year.

There are also limits within the overall allowance. For example, you can only put up to £4,000 per year into a LISA. If you used the full LISA allowance, you’d only have £16,000 left to put into other types of adult ISAs in that tax year.

From 6 April 2027, savers under 65 will be limited to putting a maximum of £12,000 into a cash ISA per tax year. This still counts towards the overall £20,000 annual ISA allowance. Transfers of funds from stocks and shares ISAs to cash ISAs will also be banned as part of the changes.

A Junior ISA has its own allowance of £9,000 per tax year.

How cash ISAs work

A cash ISA is essentially a savings account where you pay in money and earn interest on your savings. The key difference to a traditional savings account is that interest earned on a cash ISA is tax-free. This means regardless of how much interest you earn in an ISA, you won’t pay any tax on it.

This is different to those holding a standard cash savings account, where income tax is owed on any savings interest which exceeds tax-free allowances, such as the personal savings allowance.

There are several different cash ISAs to choose from:

• An easy-access ISA is a useful home for your emergency savings pot, as these allow you to withdraw money when you need it without incurring a penalty – some may limit how many withdrawals you can make before hitting you with a charge.
• Fixed-term ISAs pay an agreed interest rate over a set period of time, typically one to five years, much like a savings bond. They tend to offer higher rates than easy-access ISAs, but in exchange, you have to leave your money untouched or risk paying a penalty.
• Flexible cash ISAs allow you to take money out and replace it during the same tax year, without that amount being deducted from your ISA allowance. For example, you could pay in £20,000, then withdraw £5,000, and a flexible ISA would allow you to pay the £5,000 back in during the same tax year. Not all cash ISAs offer this “flexible” status, so check with the bank or building society, especially if you plan to use the account as an emergency savings pot where you might need to make withdrawals.

You can currently contribute £20,000 to a cash ISA each tax year, but this would leave you with nothing left out of your annual ISA allowance.

Alternatively, you could decide to split the total – such as by contributing £10,000 to a cash ISA, £6,000 to a stocks and shares ISA, and £4,000 to a LISA.

Before 6 April 2024, you could only open and pay into one cash ISA and one stocks and shares ISA per tax year. Now, you can hold multiple ISA accounts, of the same type, within the same year.

In terms of transferring an ISA, you’re free to move a cash ISA to one that pays a better interest rate or one that better suits your needs without affecting this year's allowance – as long as you complete the correct transfer forms.

For your money to retain the all-important tax-free status, contact the ISA provider you want to move to and fill in the transfer form.

If you simply withdraw the money and then deposit it into an ISA, your money will no longer be in the tax-free wrapper. The value of the funds you move will instead come out of your ISA allowance for that year.

Cash ISA transfers should take no longer than 15 working days, according to the government. Other types, like stocks and shares ISAs, can take around 30 calendar days. You’re also free to move to a different type of ISA, such as from cash to stocks and shares, or say, from innovative finance to cash.

How stocks and shares ISAs work

Stocks and shares ISAs, also known as investment ISAs, allow savers to invest in a broad range of assets. Any investment gains you make will not be subject to capital gains tax, income tax or dividend tax. The only tax you may have to pay is stamp duty when buying shares.

The best way to think of a stocks and shares ISA is an investment account with a tax wrapper around it. Like a general investment account (GIA), you can buy everything from shares to bonds to property in the form of real estate investment trusts (REITs), plus open-ended funds (Oeics) and exchange-traded funds (ETFs).

You can choose ready-made investment portfolios (think Moneybox, Wealthify and J.P. Morgan Investing) for your stocks and shares ISA. These are portfolios put together by professionals and are useful if you’re a beginner and looking to take a hands-off approach to investing.

There are also DIY stocks and shares versions (providers include Hargreaves Lansdown, AJ Bell, Charles Stanley Direct and many others), where you can pick your own funds, bonds and shares.

As with any investment account, ensure you check the fees charged by the ISA provider which can chip away at your returns. There could be an annual fee for a stocks and shares ISA, fees to trade investments, and possibly an exit charge.

To move a stocks and shares ISA, ask your new provider for a transfer form.

How Lifetime ISAs work

Lifetime ISAs are the most generous member of the ISA family, with a government bonus of up to £32,000 on offer, over time. Launched in April 2017, they have the dual aim of helping those under 40 get onto the property ladder or save for retirement.

To open one, you must be aged between 18 and 39. You can contribute up to £4,000 each tax year until you’re 50, and must make your first payment into your account before you’re 40. The money you pay in counts towards your £20,000 ISA limit. You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both.

The best bit about LISAs is you get free cash from the government with each deposit. You’ll get a juicy 25% bonus worth up to £1,000 every tax year, depending on your contribution. For example, if you pay £2,000 into your LISA this tax year, you’ll receive a £500 top-up.

You can only access the money penalty-free at age 60 or over, or to buy your first property up to the value of £450,000. You can also withdraw your cash if you’re terminally ill and have less than 12 months left to live.

If you are using a LISA to buy your first home, you must purchase the property at least 12 months after you’ve made your first payment into the LISA.

While the government bonus is a great incentive to open a LISA, bear in mind that if you use it for anything other than the three above scenarios, you’ll be hit with a 25% withdrawal charge, which means you could end up with less than you put in.

The government is launching a consultation in 2026 on the rollout of a new “simpler” product to help first-time buyers get a home.

The retirement option on the LISA could be scrapped as part of the consultation, according to reports.

How Junior ISAs work

If you have children or grandchildren aged under 18, you can save into a JISA for them.

These can be cash or the stocks and shares variety. The account has to be opened by a parent or guardian, but once it’s set up, anyone can add money to it up to £9,000 per tax year.

As an example, if you have paid £2,000 paid into your child’s cash JISA on 15 April 2025, only £7,000 could be paid into their stocks and shares JISA in the same tax year.

The £9,000 JISA limit is separate to the £20,000 allowance for adult ISAs.

As with adult ISAs, any investment gains or interest earned within a JISA is totally tax-free.

The child cannot access the money until they turn 18. As soon as they reach their 18th birthday, they can spend it – or save or invest it – as they choose. This means alongside the cash you deposit into their account, try and also deposit good financial habits into their brains by teaching them about money.

If your child has a Child Trust Fund (CTF) – those born before January 2011 may have one – consider moving it into a Junior ISA. Simply request a transfer form from the Junior ISA provider. Cash Junior ISAs typically have higher interest rates than CTFs, while stocks and shares Junior ISAs generally have lower fees than the CTF versions.

How Innovative Finance ISAs work

Innovative Finance ISAs (IF ISAs) were introduced in 2016 to allow people to invest some or all of their £20,000 annual allowance in peer-to-peer lending and enjoy tax-free returns.

This involves lending your money directly to businesses and individuals without a middleman, such as a bank, in return for interest. Providers include Triodos Bank and EasyMoney.

They are the least popular ISA, and remain a niche product. In 2023/24, just 10,000 people added money into an IF ISA, according to the latest HMRC data. However, in 2024, the range of investments expanded, with long-term asset funds and open-ended property funds with extended notice periods allowed inside Innovative Finance ISAs.

Crypto ETNs – an ISA-eligible instrument that tracks the price changes of cryptocurrencies – can be held in an IF ISA from the start of the 2026/27 tax year.

These developments could potentially increase the popularity of IF ISAs.

IF ISAs are considered the most risky ISA option. Because each ISA provider tends to specialise in a particular niche – small businesses or property developers, for example – it is difficult to diversify across different sectors.

How Help to Buy ISAs work

It’s no longer possible to open a Help to Buy ISA, as they have been replaced by Lifetime ISAs. However, if you already have one, you can continue paying into it until November 2029.

You can contribute up to £200 each month and the government will then top up your savings by 25% (up to a maximum of £3,000) when you buy your first home. You can claim the bonus until November 2030. The home you buy must be priced at £250,000 or less (£450,000 or less in London), be the only property you own and where you intend to live.

As it stands, LISAs are more flexible as the maximum property price is £450,000 for the whole of the UK, you can use it as a retirement nest egg if you don’t end up buying a home, plus the maximum amount you can add into one each tax year is higher.

Are ISAs subject to inheritance tax?

ISA savings and investments do form part of an estate for inheritance tax (IHT) purposes. That said, married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die.

ISAs can also be passed on and retain their all-important tax-free status.

The additional permitted subscription (APS), also known as the inherited ISA allowance, gives the beneficiary an extra ISA allowance, allowing more tax-efficient savings to be made.

For example, say you have £100,000 in your ISAs. When you die, your husband, wife or civil partner will get a one-off £100,000 ISA allowance, in addition to his or her £20,000 annual ISA allowance.

This allowance can be used by a spouse or civil partner, regardless of whether the money in an ISA is left to them or not.

So even if you decide to leave the money in your ISAs to someone else in your family, your spouse is still entitled to the extra allowance to the value of the assets held in your ISAs.

If that £100,000 of ISA assets was left to a child, your spouse would still be entitled to an increased ISA allowance of £100,000 and could use their own money to fund it.

If you've been contributing to a Junior ISA for your child or grandchild, payments may be subject to inheritance tax if you leave an estate worth more than £325,000. However, rules surrounding 'gifting' will apply. You can gift up to £3,000 each year, without incurring IHT. There’s another gift allowance that allows you to hand out £250 to a person each year. It can't be used on somebody you've already used a gifting allowance on, however.

There will be no IHT to pay if the money was paid into the Junior ISA seven or more years before your death.

We explore this topic further in our guide: Can I shield my ISAs from inheritance tax?

Are ISAs worth it?

ISAs are considered worth it because they shield your interest, capital gains and dividends from tax.

You can also pass on the value of your ISA to a spouse or civil partner tax-efficiently.

However, you should only be opening and adding money into an ISA if you don’t have any debts to pay off or credit card balances to clear.

One major drawback to ISAs is the £20,000 annual allowance, but there is no harm in using this allowance first then putting any additional money into other accounts like a general investment account or standard cash savings account. You can earn some interest on savings without being taxed via the personal savings allowance.

When and why were ISAs introduced?

ISAs were introduced in the UK in 1999, under then-chancellor Gordon Brown. While the annual allowance is now £20,000, it started at £7,000.

ISAs replaced the earlier personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs).

The main reason ISAs were introduced was to encourage those on middle and lower incomes to save their money without being subject to tax.