Martin Lewis 'disappointed' at reports of cash ISA limit cuts
"I doubt it'll substantially nudge people to invest not save; said to be the aim. This isn't nudge economics, its p*** people off economics. Currently you can put £20,000 in tax-free ISAs, whether cash (savings) ISAs, shares (investments) ISAs or the smaller types. Its said the reduction would only be for cash ISAs, so people can still invest the same tax free.
"At this point I should note, it is v likely to only impact future ISA limits (though whether the cut would start this tax year is a big question) so those with money already in cash ISAs shouldn't panic My suspicion is that for many who use cash ISAs, it will just result in many having to pay more tax on their relatively paltry savings interest, not have an epiphany and think "oooh I'll just fill up the remainder of my ISA allowance with investments instead".
"Now I should note, I am in favour of encouraging people to invest in the UK. It's good for individuals over the longer term and for the economy, especially if a way is found to encourage people to invest in UK firms. Yet this isn't the route to do that.
"I'll be disappointed if the Chancellor chose to listen to the big investment firms in the City, and shut down many building societies and consumer groups who've said its not a good route. Instead lets start a conversation about how we encourage investments - even possible intervention when people save to explain other options.
"We need to educate, provide better 1-on-1 easy guidance, and start to change the way people think about risk. But lets use the carrot not a stick."
Reports @RachelReevesMP will announce a cut to the cash ISA limit at her 15 July Mansion House speech. If true, I think it's a mistake. I doubt it'll substantially nudge people to invest not save; said to be the aim.
This isn't nudge economics, its piss people off economics.… — Martin Lewis (@MartinSLewis) June 30, 2025
Could it be a good thing for savers?
Some experts say that Rachel Reeves should cut the limit, including Michael Healy, UK MD of IG, who says: 'The Chancellor is fighting the good fight with her ambition to get some of the £300bn sat in cash ISAs working harder for British savers and the economy. But fiddling with the tax-free allowance simply doesn't go far enough.
"This is because the cash ISA is fundamentally broken - most people aren't saving enough to pay tax on their money, and aren't getting the returns they need to grow their pots.
'We're calling for the cash ISA to be scrapped altogether, so we can start channelling more tax relief and long-term wealth into reviving the UK stock market.
"Successfully building a culture of investing would have a seismic impact - if just a fifth of the money put into cash ISAs in 2022–23 had been invested in stocks and shares ISAs instead – and half of that into UK equities - this could have generated a £4bn annual boost to UK-listed companies. That means more jobs, higher wages, and better pension returns for British people.'
What is a Cash ISA?
Cash ISAs are typically offered by banks and building societies and there are a few different types, from instant access ISAs through to junior ISAs.
They allow you to save money tax-free, and while there is no limit on how much money you can have in an ISA, there is a limit on how much you can save each tax year.
What are the advantages of cash ISAs?
"We all have a Personal Savings Allowance which allows us to earn interest on our savings without paying tax," says Chris Henderson, Save and Pay Director at Tesco Bank.
"This limit depends on how much you earn, but for people earning around the national average it is £1,000. If the interest you make on your savings is more than £1,000 you might be liable to pay tax.
"However, any interest you earn on money saved in an ISA doesn't contribute to your Personal Savings Allowance. This is generally the main benefit of ISAs."
Cash ISAs, in particular, can offer instant access to your money which means they are flexible and can be used to save towards short or long-term goals. Some providers will also let you withdraw and replace money without it impacting your overall allowance in the tax year.
What are the limits?
Adult ISAs have a £20,000 allowance. This means you can contribute up to £20,000 each tax year, but it's important to remember that this limit covers all the ISAs you hold.
It's slightly different for a Lifetime ISA which has a £4,000 limit. If you have children or grandchildren, you can also save up to £9,000 into a junior ISA each year on their behalf.
How is the interest paid?
Interest is paid either monthly or annually so check with your provider to find out when the payments are made.
What are the different types?
Cash ISAs usually fall into one of two types - an instant access ISA or a fixed rate ISA.
"An instant access ISA usually allows you to make withdrawals and has an interest rate that can go up or down," says Chris. "If the ISA is flexible, you can take money out and replace it during the same tax year without re-counting towards your ISA limit.
"A fixed-rate ISA has a fixed interest rate that won't change for the duration of the fixed term. If you know you don't need immediate access to your savings, or if your savings goal is more long-term, you can consider a fixed rate ISA. This will lock in a savings rate for a set amount of time."
It's important to remember that a fixed rate means you won't see any rises or falls in your returns if the Bank of England makes changes to its base rate. However, a fixed rate can give you peace of mind with a consistent return on your savings. If you wish to take money out, you typically have to withdraw the full balance and close the account, and it's worth being aware that this usually comes with a fee.
"Our latest research showed that 19% of people in the UK hold a cash ISA because they are easier to understand than a stocks and shares ISA, but do your research on the different types and what will suit your financial goals," says Chris.
What about transferring one ISA into another?
You can transfer funds saved in other ISAs between providers. Funds moved from previous tax years won't contribute to your ISA limit for the current tax year, as long as you use the ISA Transfer Process. Some providers limit how much you can take out, depending on the type of ISA you have, so you'll need to consider these limits before moving money between your cash ISA accounts.
Recommended reading:
Three common myths about cash ISAs
1: You need to deposit a certain amount of money to open a cash ISA
Wrong, says Chris: "Our research revealed that nearly a third (29%) of people don't have a Cash ISA because they don't think they've enough money to put in one. However, for some products you can start by depositing as little as £1 and start building from there."
2: Your money isn't protected
That's also wrong, Chris explains: "The savings protection works the same for cash ISAs as it does for normal savings. So, under the Financial Services Compensation Scheme, as long as your money is in a UK-regulated bank or building society account you are protected up to £85,000 in total across all accounts you hold."
3: You have to max out your allowance every year
And again, that's wrong, says Chris: "You're under no obligation to use your full ISA allowance of £20,000 each tax year. Be aware though that if you're not using your full allowance, you could be forfeiting the potential tax benefits for any savings that are currently not in an ISA.
"The ISA allowance of £20,000 is the maximum amount you can save in an ISA (or combination of ISAs) and benefit from tax-free interest or investment returns."
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