What’s changing with ISAs – and why it matters for your money

Right now, adults in the UK can put up to £20,000 each tax year across a mix of ISAs, including:

• Cash ISAs – basically a tax-free savings account.
• Stocks & Shares ISAs – where you can invest in the stock market.
• Innovative Finance ISAs – for peer-to-peer lending and other niche assets.
• Lifetime ISAs (LISAs) – for first-time buyers or retirement, with a limit of £4,000 per year (and a 25% government bonus).

You can spread your £20,000 across any of those, but you can’t go over the total limit without getting taxed.

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Now, this is where things get political. According to reports, Chancellor Rachel Reeves is planning to cut the allowance for Cash ISAs in her Mansion House speech, possibly to around £4,000 a year, in an effort to nudge people to invest instead of just saving.

The idea is that encouraging people to move cash into stocks could boost investment in British companies and help get more money flowing into the UK economy.

But here’s the catch: without proper financial education, this risks leaving a lot of savers exposed.

Most people keep money in Cash ISAs because they want safety and certainty, not because they don’t know how to invest. For example, you might be saving for a house deposit, a wedding, or a rainy day. And if the Cash ISA limit drops, that doesn’t mean people will suddenly start investing, it might just mean they keep saving outside of an ISA and end up paying tax on their interest.

Currently, we all get a Personal Savings Allowance that’s £1,000 a year of interest tax-free for basic-rate taxpayers (and just £500 for higher-rate, its gone as an additional rate tax payer). But with interest rates still relatively high, it’s easier than ever to hit that limit if you’ve got a decent chunk in savings.

So this change, if it goes ahead, will mostly affect people who are careful savers, not just the wealthy.

The real solution? More education, not just more investment products. If we want people to take more risk with their money, we need to make sure they understand that risk and feel confident doing it.

A Cash ISA cap might shift some behaviour, but without education, it risks penalising people for doing the right thing: putting money aside for their future.

Abi Foster is LBC's personal finance expert and can be found here