The content below isn’t financial advice.
Savers are worried that cuts to the cash Isa allowance are on their way after months of speculation.
The rumours of a reduction in the amount people can save into cash Isas stem from Chancellor Rachel Reeves refusal to rule it out, combined with the government’s desire to increase investment into the stock market.
Currently, people can put as much or as little as they like of their annual £20,000 Isa allowance into either a cash Isa or stocks and shares Isa.
But there is speculation that the amount that can be saved as cash could be trimmed back, perhaps even as far as £4,000.
While the Chancellor has said that she will not lower the overall £20,000 Isa allowance, she has declined to confirm that she won’t reduce the cash element.
We spoke to saving and investing expert, Victor Trokoudes, founder and CEO, of Plum to find out more about how such a move would affect people.
The cash Isa allowance shrinking is a move potentially on the cards for the Chancellor
Why do cash Isas matter?
Victor Trokoudes replies: A cash Isa is a type of savings account that also protects savers from income tax on interest earned, which is why some people refer to them as ‘tax wrappers’.
Cash Isas offer attractive savings rates currently, and remain a very popular product with the amount put into cash Isas increasing by almost 20 per cent in April 2025 compared to the same month in previous year.
In fact, £14 billion was put into Isa accounts with banks and building societies during that month, which was the highest since the Bank of England started recording this information.
Would cutting the cash Isa allowance matter to all savers?
Victor Trokoudes replies: Whilst cutting the limit may not matter to savers who can’t afford to pay in the full allowance of £20,000, it will have important ramifications for many cash Isa users.
If it’s cut to £5,000 that’s a huge allowance cut for savers and they may feel it limits their savings goals, especially if they are a higher rate or additional tax rate payer as they have a reduced or no savings allowance respectively. That makes it more likely they will have to pay tax on their interest.
Should more savers consider investing?
Victor Trokoudes replies: Investing isn’t a suitable option for those who are building their emergency financial buffer, or don’t want to take on any risk because they have a particular goal in mind for the very short-term.
For example, if you were saving for a special event like a wedding in the next year, you likely wouldn’t want to put your capital at any risk in the stock market.
But there is a clear rationale for encouraging more people to invest rather than save. Investing in the stock market has historically often been the best long-term option to secure higher returns for your money.
What should you consider before you invest?
Victor Trokoudes replies: You should only invest money that you’d be comfortable to put at risk as the value of investments can go up or down.
So, while you could make a profit, you could also get back less than you put in. This can be particularly true in the short term. You shouldn’t invest money you’re likely to need within the next five years.
How can people move from saving to investing?
Victor Trokoudes replies: If you want to start your investing journey it’s worth researching beforehand and seeing what funds or stocks are performing well. Start with investing small amounts of money – some apps let you start with as little as £1 – to see what results it yields.
If you decide you want to invest some of your cash Isa, you can transfer your money into a stocks and shares Isa, which is the type of Isa account you can use for investing.
However, it’s important to use the official transfer process to move money from a cash Isa to stocks and shares Isa, so it remains within a tax wrapper and you don’t have to pay tax unnecessarily.
Find out more at withplum.com
Plum is the trading name of Plum Fintech Limited and Saveable Limited. Plum Fintech Limited is registered and regulated by the Financial Conduct Authority (FRN 836158). Saveable Limited is authorised and regulated by the FCA (FRN: 739214).
