Cash ISA changes are still planned - what should you do?

Changes to ISAs are still being planned, according to the chancellor. 

Despite strong rumours that the chancellor’s annual Mansion House speech would include a cut to the cash ISA allowance, Rachel Reeves appeared to have a change of heart. But her speech said she would “continue to consider further changes to ISAs”.

Below, we explore what's most likely to happen, and that means for your savings.

What’s on this page?

1. What is definitely changing?
2. What might happen to ISAs in future?
3. What does it mean for existing ISAs?
4. Why are there plans to change ISAs?

What is definitely changing?

There are no confirmed changes to cash ISAs. Savers can still save £20,000 a year tax-free, across all ISA products.

But savers could still notice a difference because of proposed new rules about financial guidance, known as targeted support. Currently there are strict rules about the kind of guidance financial firms can offer. Known as targeted support, these rules are currently under consultation until 29 August and due to come into force in April 2026. 

The Treasury policy note about the changes, which has just been published, says “Under targeted support, a firm will be able to help those with substantial savings to consider investing and suggest an appropriate investment product.” So you might start getting messages from your bank suggesting that you move your cash into investments instead.

It’s also been confirmed that there will be a consumer advertising campaign, funded by the industry, to promote investing. Barclays, Lloyds, HSBC, NatWest, AJ Bell, Schroders, Hargreaves Lansdown and St James’s Place are among the companies that have already signed up.

Risk warnings on investment products may also be changed in order to help people ‘accurately’ judge risk levels.

A minor change is that Long-Term Asset Funds (LTAFs) will be allowed in stocks and shares ISAs. Currently these can only be held in a more niche ISA called an Innovative Finance ISA.

LTAFs are a relatively new type of fund designed for long-term investing in private markets, including private equity, private debt, real estate and infrastructure. They're mainly used by pension funds. So this isn't a change likely to make a huge difference to the average investor. 

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “It’s incredibly positive to see Rachel Reeves take some key steps towards closing the UK’s yawning retail investment gap. There will be a new era of investment with the advent of new rules allowing companies to offer targeted support to their clients, alongside changes to risk warnings so they actively help retail investors understand their options rather than standing in their way of harnessing the incredible power of investment.

“Changes to the advice/guidance boundary will give them the understanding and confidence to realise the right balance of savings and investments for their needs, and take advantage of the huge potential that investment offers.”

What might happen to ISAs in future?

The most likely change to cash ISAs still looks to be a cut in the annual allowance. Currently, savers can pay up to £20,000 a year into a cash ISA. Reports have suggested this could fall to £4,000, but no formal proposal has been made yet.

It’s possible that the autumn Budget will be when any changes will be announced. 

HMRC figures show that two-thirds (67%) of those paying only into a cash ISA contribute less than £5,000 a year. And just 10% use the maximum £20,000 allowance. But that could still mean that a third of ISA savers would be affected by a change to a £4,000 limit, and not all of those will be willing to invest instead.

Another more radical option is that cash ISAs could be phased out completely. This was rumoured at the start of the year and caused an immediate uproar. Building societies rely heavily on cash ISA deposits to fund their mortgage lending. So it seems unlikely that cash ISAs will disappear completely.

Some experts have called for a new single combined ISA that would allow people to save cash as well as investing in stocks and shares. (In practice, you can already hold uninvested cash in a stocks and shares ISA and earn interest on it, but it's not widely used in this way.)

Tom Selby, director of public policy at AJ Bell, says: “We need to start from scratch when it comes to ISA reform. ISAs are enormously popular, but over time the landscape has become increasingly complex, with multiple different ISAs each with their own rules and regulations.

“A starting point on the road toward simplification should involve merging Cash and Stocks and Shares ISAs, ending the arbitrary distinction between the two to create a unified ISA product serving the needs of the vast majority of ordinary people.

“It makes sense to have a best of both approach – cash for a rainy day and investments for long-term growth. But just 16% of ISA holders today have both a cash and stocks and shares account. That’s a clear sign the system isn’t working and is symptomatic of an ISA landscape which presents what appears to many people as an either-or choice between cash saving and investing.”

Rachel Springall, finance expert at Moneyfactscompare.co.uk, points out that there is also the opportunity to offer more financial incentives for investors. “One way that the government could encourage saving into a stocks and shares ISA would be to offer a short-term government bonus for investing in UK stocks, such as they currently offer on lifetime ISAs [which offers a 25% bonus, worth up to £1,000 a year],” she says.

What does it mean for existing ISAs?

Here are answers to common questions from people concerned about their ISA savings. 

Q: I have been saving into a cash ISA for years. Could my savings become taxable in future?

While it's always possible that tax regimes can change, most experts think it's unlikely that any changes will affect existing ISAs.

Q: My wife and I have fixed rate ISAs that mature after the Budget. Should we be worried?

 Whilst your fixed-rate ISA will reach maturity at a certain date, it won't stop being an ISA. Typically the provider will then turn it into an easy-access ISA with a lower rate of interest. It's a good idea to then transfer it to a different ISA with a higher rate of interest (either with the same provider or a different one).

The important thing is to make sure you do this as an ISA transfer. First check that the account you want to transfer it to accepts transfers in. Then fill in a transfer request form (either online or a paper form) with the details of the account you are transferring from.

Don't withdraw the money into your current account (or any other non-ISA account) as it will then lose its ISA status.

Q: I don't have an ISA - should I open one?   

If you have cash savings that aren't in an ISA, why not use the uncertainty as an incentive to shield your cash from the taxman while you can?

You might not currently pay any tax on savings. Bear in mind you don't know what will happen to interest rates in future, which will affect the interest you earn. It's also worth considering whether you expect to grow your savings, which could in turn mean you have a tax liability in future.

And with interest rates still relatively high and competitive rates on offer, it’s a good time to sort out your savings. “Given reform is in the air, make the most of the ISA allowances you have now,” advises Selby.

“That’s always a good idea if you can afford to, regardless of potential reforms, as your ISA allowance is available on a ‘use it or lose it’ basis each tax year.”

If you have Premium Bonds but not an ISA, you can read more here about the times Premium Bonds are and aren’t a good choice. 

Why are there plans to change ISAs?

The idea is that ISA reform would encourage more UK savers to invest in stocks and shares ISAs. In theory, this would help people achieve better returns on their savings and help more of us remain financially independent in later life.

A £10,000 deposit placed in a typical cash ISA ten years ago would today be worth £11,513, compared with £17,999 if that money had been invested in a FTSE All Share tracker.

It could also support the UK economy if that cash was channelled into British stocks. A recent study by Barclays highlights this ‘investment gap’. It found that there are 13 million Brits who already have six months’ income set aside for emergencies, who hold a further £33,000 each (on average) in cash that might be better invested.

And according to AJ Bell’s analysis of government figures, over 4.4 million adults have more than £10,000 in a cash ISA but don’t invest. And 3 million have over £20,000 without having any stocks and shares ISA investments. AJ Bell says: “At a conservative estimate, those 3 million savers hold almost £100 billion in cash ISA accounts but no ISA investments.”

Cash ISAs are far more popular than stocks and shares ISAs. Government figures show that 63.2% of all ISAs subscribed to in 2022/23 were cash ISAs.

But it's debatable whether cutting cash ISA allowances would have the desired effect. Over half of cash ISA savers surveyed by the investment platform AJ Bell said they would simply move their money into a taxable savings account and only a fifth would invest in UK stocks.

Selby says: “Our research suggests the blunt tool of restricting cash allowances may not be effective, as most people will simply look for alternative cash products.”

A cut in the allowance could make it harder for older savers to shelter income-generating cash from tax. And for those approaching retirement, cash ISAs remain a vital part of their financial planning. It would also punish those who simply do not want to invest in the stock market.