I’m a cash lover, what do the Budget Cash ISA changes mean for me?

Ask the experts. Laura Suter is on hand to answer your personal finance questions. If you'd like a question considered for a future edition send it in now.

I’ve seen the changes to Cash ISAs announced in the Budget, and I’m worried about how it’ll affect me. I max out my Cash ISA every year by putting in the full £20,000, so any change to the rules or limits could clearly impact me and my savings plan, as I’m under the age of 65. Can you explain what’s changed and what it means for someone in my position? 

Janet, London

Laura Suter, AJ Bell Director of Personal Finance, says:

This was one of the big changes to come out of the Budget: an overhaul of how Cash ISAs will work. Let’s cover what’s changing. For anyone under the age of 65 they will be limited to putting £12,000 into their Cash ISA from April 2027. They will still have the full £20,000 annual ISA allowance overall, so they can put the remaining £8,000 into their investment ISA – or just not use it, if they’re that way inclined. For anyone over the age of 65 the Cash ISA limit is still the full £20,000. On paper this means they are unaffected by this, but there is some devil in the detail we’ll come on to later. 

What about happening?

For those under 65, it means their tax haven for cash will be cut. The Government’s plan is that this will spur more people to start investing – the reality is perhaps not quite so clean cut. The Government view is that too many people are putting too much money in cash and overlooking the benefits of investing. And for some people this is true – we’re a nation of cash lovers and many people just stick their savings in cash and don’t consider investing. So the Government hopes that removing an incentive to save loads in cash will nudge people towards putting their money to work in financial markets. 

For those who currently save the full £20,000 in Cash ISAs each year, like yourself, it means you have three main options: investing that money, putting it into a taxable cash account or switching to something like Premium Bonds (or you can stick it under your mattress, but that’s not going to be any match in the fight against inflation, so we’ll disregard it for now).

Most people will resort to a normal savings account and pay tax on that savings interest, if it exceeds their Personal Savings Allowance. At least that’s what people said when we surveyed them before the Budget. And based on our own figures, the cost of this will add up over the years into a far meatier tax bill for individuals – particularly for the highest earners. We know that millions of people are already paying tax on their savings interest, and that is only likely to grow after this change comes in.

What does it mean for your savings?  

For some people the safety of cash will be worth the higher tax bill, even if some of their interest is being eroded by tax. But I think it’s important for people to be aware of just how much of their returns will disappear if that savings interest is taxed. Let’s take someone with a non-ISA account that’s paying 4% interest a year on the money. An additional rate taxpayer doesn’t get any tax-free Personal Savings Allowance, so every penny of interest they get will be taxed at 47% from April next year. It means that after tax that effective 4% interest rate becomes 2.12%. That’s a dramatic drop, and one more people need to be aware of if they are hoping for their cash to keep up with or beat inflation.

As a result, Premium Bonds are likely to become a more popular choice too. These accounts have no guaranteed interest rate or return, but winnings from the monthly prize draw are tax free. Clearly it’s a gamble and you might win nothing, but for those who are facing a high tax bill for their savings interest it might seem more appealing. 

The other main option is investing the remaining £8,000. For some that won’t fit with their financial plans or risk tolerance, but this change to Cash ISAs is a good opportunity to reset and assess whether you are just sticking to cash as a default and whether investing could be a better option. You mention that you regularly put £20,000 into your Cash ISA – is that because you need a cash pile or you have short-term financial plans that require you to stick to cash, or is it just a default move because investing seems daunting or complicated? If the latter, it’s probably worth challenging that view.

Why you won’t necessarily be able to rely on ‘cash-like’ holdings

And the eagle-eyed will notice that I previously mentioned potential details and knock-on effects even for those over the age of 65. That’s because the Government is planning to bring in a raft of measures to stop people just stuffing their investment ISA with the remaining £8,000 of ISA allowance and putting it in ‘cash-like’ investments. These are things like money market funds, short-dated bonds, T-Bills or just leaving it in cash in the investment account. 

How will the Government police this? We’ve not got a huge amount of detail at the moment but it looks like cash in an investment ISA may face some sort of charge (an explicit charge or a tax, who knows?) or that certain investments may be restricted in an ISA. And for those thinking of sneakily paying the full £20,000 into their Stocks and shares ISA and then transferring it to a Cash ISA, think again. Because the Government also plans to ban transfers from investment ISAs into Cash ISAs, to stop just that kind of trick. More details on all of these measures will be announced in 2026 and one thing is for sure – I’ll dig through them and explain them all when we have the small print. 

For now, the main thing to remember is that nothing has immediately changed: we won’t see these plans come into force for another 16 months. So don’t panic, wait for more detail and we’ll definitely keep you updated. But in the meantime, you could take a look at how much you have in cash and assess whether it’s necessary.