Savers tell Reeves: we'll snub stocks and shares ISAs even if cash limit is cut

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.

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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.