Savers in the United Kingdom are facing a substantial reduction in the amount they can contribute to tax-free cash Individual Savings Accounts (Isas) starting next April. The annual allowance for cash Isas, a popular savings vehicle, is set to decrease from £20,000 to £12,000 for individuals under 65. The total Isa limit across both cash and stocks and shares accounts will remain at £20,000, requiring savers to funnel any remaining allowance into stocks and shares Isas or forfeit the unused portion.
This change disproportionately affects savers who prefer the security of cash. The Treasury has indicated that further details on the implementation of these new rules will be published in the autumn, with industry insiders expecting them as early as next month. These adjustments are reportedly a continuation of fiscal measures introduced by former Chancellor Rachel Reeves in the Autumn Budget of 2025.
New Chancellor John Healey is unlikely to reverse the proposed changes, which are seen as a significant revenue generator. The Building Societies Association has noted that the new Chancellor has the option to scrap the complex reforms, but their continuation is widely anticipated.
Beyond the reduced allowance, individuals under 65 will also lose the ability to transfer funds from stocks and shares Isas into cash Isas. This restriction is intended to prevent the practice of depositing funds into a shares Isa and then moving them to a cash Isa. Furthermore, any cash held within a stocks and shares Isa will be subject to a 22% tax on earned interest, regardless of the account holder's age, eliminating the tax-free benefit for such holdings.
Consumer group Fairer Finance reports that Isa platforms may offer little to no interest on cash held in their stocks and shares Isas, often paying less than 2%, compared to the upwards of 4% available in cash Isas that are tax-free.
For individuals aged 65 and over, the cash Isa allowance will remain at £20,000. This higher limit applies from the beginning of the tax year in which they turn 65.
Savers seeking the best available rates on flexible cash Isas can currently find up to 4.6% with app-based provider Trading 212. This rate includes a one-year bonus of one percentage point, requiring savers to review rates after 12 months. Flexible Isas allow for withdrawals and re-deposits within the same tax year without impacting the annual allowance, unlike non-flexible accounts where re-deposits count towards the limit.
Among branch-based accounts, Coventry Building Society offers a 4.25% rate on its 4 Access Isa, which is flexible but limited to four withdrawals annually. Hargreaves Lansdown provides a non-flexible account with a higher rate of 4.52%. For a flexible Isa with no bonus or withdrawal restrictions, Spring offers 4.01% through its app. Fixed-rate options include Vida, which offers 4.7% on a one-year fix, 4.77% on a two-year fix, and 4.85% on a five-year fix.
The guidance prioritizes accounts offering rates above 4%, excluding those with bonuses or withdrawal limitations in its top selections, and ensuring coverage by the Financial Services Compensation Scheme up to £120,000.