ISAs raid is brutal but may lead to bigger gains

REPORTS that Chancellor Rachel Reeves is set to cut the cash ISA allowance have caused panic among savers, but as yet we don't know what she's going to do.

- By Harvey Jones

There has been speculation that she could cut the amount people can pay into a Cash ISA each year from £20,000 to just £4,000, in a huge blow for savers.

The aim is to encourage more people to invest in the stock market instead, via a Stocks and Shares ISA.

While many don't like the idea of coercion, Reeves does have a point.

Over the longer run, equities will work your money harder than cash.

Reeves wants to strike a better balance between the two, which is something savers also need to do.

It won't be easy though. What suits one person won't suit others.

ALARM

While many savers are alarmed at potentially losing their Cash ISA tax break, the truth is that most only use a fraction of it. In the 2022-23 tax year, the average ISA only had £6,848 deposited into it, HMRC figures show. This covers both Cash and Stocks and Shares ISAs.

So even if the Cash ISA allowance was cut to just £4,000, it wouldn't affect the vast majority of savers.

Most simply can't afford to save anywhere near £20,000 a year. Only 7% of ISA savers use their full allowance, mostly higher earners.

With ISAs under threat, savers and investors need to make an extra push, said Andrew Tricker, director at Lubbock Fine Wealth Management.

"Savers planning to use a Cash ISA should consider using as much of their allowance as they can before the Spring Statement on March 26."