For many investors, having an emergency fund is a fundamental step before diving into long-term investments. Typically, this safety net is equivalent to three to six months of one’s salary, creating a financial buffer against unexpected expenses like a broken boiler or car repairs.

Despite this prudent approach, a significant number of savers still hesitate to invest, even with a substantial amount set aside. According to research by Moneybox, UK savers feel they need a cash reserve of £27,617 before they’re comfortable allocating funds towards long-term investments. This figure stands in contrast to the average UK salary, which is slightly over £37,000.

A striking 87% of savers believe that having a ‘significant’ cash cushion is a prerequisite for beginning their investment journey. This sentiment underscores a cautious approach to financial risk, even as the government actively encourages retail investing.

In an effort to stimulate investment, the government is contemplating reductions to cash Isa allowances, aiming to shift more individuals towards the stock market. This push highlights the tension between fostering financial security and encouraging proactive wealth building through investments.

As many as 87 per cent of savers said they think a ‘significant’ cash safety net is essential to have before the start investing.

However, this reticence towards investing comes at a time when the Government is pushing hard to promote retail investing, and is considering making cuts to cash Isa allowances to do so.

While the average UK salary is currently just over £37,000, savers say they need to have a cash pot worth £27,617 before they feel comfortable investing

The latest rumblings indicate that the Chancellor could slash the cash Isa allowance to just £12,000, according to the Financial Times, although a cut to £10,000 has not been ruled out.

A cut like this could be the biggest Isa overhaul for some 25 years.

> Read more: Investing for beginners: How to get started 

The cash Isa, which offers tax-free saving of as much as £20,000 per year is integral to helping savers be financially resilient, Moneybox says.

Around £300billion worth of savings is currently held in cash Isas by savers, making them by far the most popular Isa product, ahead of stocks and shares and lifetime Isas.

Four in five savers told the firm they think cash savings are the foundation of their financial confidence, and almost half, some 44 per cent, said the ability to build up a substantial amount of savings will help to increase their motivation to invest.

Cecilia Mourain, chief savings officer at Moneybox, said: ‘Cash Isas play a critical role in helping people build financial security and the confidence to take their first steps into investing.

‘A strong cash foundation enables households to weather shocks and pursue long-term goals, from homeownership to retirement.’

Almost half of people with cash Isas, 48 per cent, said they used their cash Isa before starting to invest, with 65 per cent beginning to invest within two years of opening a cash Isa account.

As many as 80 per cent of savers said cutting the Isa allowance would undermine financial confidence.

Just nine per cent said a cut to the allowance would prompt them to invest.

She added: ‘In a period of economic uncertainty, consistency and clarity in savings policy is essential. 

‘Millions of people rely on the cash Isa to build their financial future, and any changes should be carefully considered to ensure they continue to support savers on their journey from building resilience through saving to long-term wealth.’

> Read more: The best investment platforms 

On average, Moneybox says people have between one and two cash Isas, and use them largely to build their cash savings.

Some 46 per cent of 18 to 34-year-olds said they use cash Isas to improve their financial discipline, while 42 per cent said they also use the savings products to save for specific ambitions like house deposits and weddings

Younger people hold an average of £26,897 in their cash Isas, while those from 35 to 64 have an average pot worth £39,996.

Somme 41 per cent of older people said they use their cash Isa for their emergency fund.

SAVE MONEY, MAKE MONEY

Sipp cashback

Sipp cashback

£200 when you deposit or transfer £15,000

4.56% cash Isa

4.56% cash Isa

Trading 212: 0.71% fixed 12-month bonus

£20 off motoring

£20 off motoring

This is Money Motoring Club voucher

Free shares bundle

Free shares bundle

Get free UK shares worth up to £200

4.45% Isa with bonus

4.45% Isa with bonus

Now with no penalty for withdrawals

Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.