Chancellor Rachel Reeves has confirmed that from April 6 2027, individuals under the age of 65 will only be able to deposit up to £12,000 per year into Cash ISAs, a reduction of £8,000 from the current £20,000 limit. The change affects everyone born after 1961.
Unintended consequences of the allowance cut
Sarah Coles, head of personal finance at AJ Bell, commented on the policy shift: "The dash for Cash ISAs in May, on the back of a £12 billion boost in April, lays bare the unintended consequences of cutting the Cash ISA allowance." She added: "This tax year is the last chance for under 65s to pay in up to £20,000 before their allowance is cut to £12,000 from April 6 2027. It means they’re filling their boots while they can."
The policy was intended to encourage savers to move away from cash and towards investing in Stocks and Shares ISAs. However, the immediate effect has been a surge in Cash ISA deposits as savers rush to use the higher limit before it is reduced.
Impact on savers and advice from experts
Coles explained: "Cash plays a vital role in everyone’s lives, and anyone of working age typically needs enough to cover three to six months’ worth of essential spending in an easy access account – plus money for any planned one-off expenses in the next five years." She advised that beyond these needs, savers should consider Stocks and Shares ISAs for long-term growth: "In the short term you may see the ups and downs of the stock market, but in the long run, it has a far better chance of beating inflation, so you can build a valuable nest egg."
Data from May showed savers were juggling accounts, moving money from easy access accounts into fixed rate accounts. Coles noted: "Inflation expectations at the time, plus competition in this market, has nudged rates higher, while easy access rates stagnated. Savers are realising the benefits of fixing savings that they won’t need for a period in return for more interest."
Political context and future changes
The announcement comes as Reeves faces expectations of being replaced as Chancellor, with Andy Burnham widely tipped to take over from Sir Keir Starmer as Prime Minister. The rule change is part of broader fiscal adjustments expected under the new leadership.
Coles concluded: "Savers tend to keep too much of their savings in easy access accounts, because it makes them feel comfortable to have it close at hand. However, this is a valuable reminder of the benefits of considering how much of your savings you’ll actually need to spend during the next year, and what you can tie up for longer, in order to make the most of your savings."
