Rachel Reeves is considering reducing the annual cash Isa allowance to as low as £10,000 in the upcoming Budget announcement on Wednesday. The aim is to encourage more savers to consider investing.

This adjustment, starting in April 2026, would compel many individuals to rethink their savings strategies and fully utilize their Isa options.

While this might prompt some to venture into investing, there are concerns that it could lead others to keep their funds in low-yield savings accounts that lack the same tax benefits.

Choosing such accounts may result in the long-term erosion of savings’ value due to inflation.

According to exclusive research from the finance comparison website Finder, shared with This is Money, about 70 percent of Britons do not invest in the stock market beyond their pensions.

A significant portion of people, 25 percent, believe investing is too risky. Additionally, 15 percent are unsure how to begin, and 12 percent feel they lack the time to conduct thorough research.

More than a quarter of people said they would choose to save their money in a non-Isa account, while ten per cent said they would spend their savings

If the cash Isa allowance is cut, only 20 per cent of people say they will invest savings in a stocks and shares Isa as a result, Finder said.

Current rumours indicate a cut to £12,000 is the most likely scenario. Savers can currently save up to £20,000 per year in Isas, split across stocks and shares, cash and lifetime Isa products.

Instead, more than a quarter of people said they would choose to save their money in a non-Isa account, while ten per cent said they would spend their savings.

Of those who would invest, 15 per cent would do so outside of an Isa, while 16 per cent would invest in Premium Bonds instead of equities and funds.

Premium Bonds offer tax free cash prizes on holdings up to £50,000, but don’t have a guaranteed return and on average only pay put about 3.6 per cent. Those with lower holdings are less likely to win.

George Sweeney, investing expert at Finder, said: ‘It was met with plenty of backlash, but trying to encourage Britons to invest more and get better returns is a commendable end point that I agree with. 

‘However, I don’t think that cutting the cash Isa allowance paves the way to this result.’

Sweeney added: ‘A large reason for this is that plenty of people don’t feel confident enough about the prospect of investing. 

‘Unfortunately, tinkering with the Isa allowance isn’t going to lead to the cultural and behavioural change necessary that would lead to more Britons investing.’

McDermott warns that timing the market can be very difficult

Non-investors lose out

Savers favouring cash might be loath to begin investing when they have never done so before, but failing to do so means they could lose out significantly over the long term, according to exclusive analysis from This is Money by Chelsea Financial Services.

UK savers have put almost double as much money into cash Isas since 1999 than they have into investment Isas.

As a result, savers could have missed out on as much as £1.9trillion in potential returns over the period, Chelsea Financial Services said, as global equities have returned some 474 per cent over the past 25 years based on the MSCI World Index, compared with just 80 per cent for cash, based on the Bank of England base rate.

This is based on the potential return from the £856billion that savers have contributed to cash Isas since 1999.

Darius McDermott, managing director of Chelsea Financial Services, said: ‘Fears of stock market volatility have cost the British public trillions of pounds.’

‘Cash has its place for short-term needs. But history shows that over the long term, investing in equities, even though a balanced portfolio, has consistently delivered higher returns.’

On top of this, Chelsea FS warns that savers often allocate to cash at times of opportunity in equities markets, and choose to invest at inopportune moments, hoping to time the market.

For example, just 27 per cent of Isa contributions went into equities in 2009/10, but equities outperformed cash by 38 times over the following 14 years. 

In comparison, during the years of the growing dotcom bubble, more people were enthusiastic about investing but lost out during the following market downturn.

‘A long-term, disciplined investment strategy through a stocks and shares Isa has consistently been the smarter approach. 

‘And there are plenty of lower-risk options available, such as bond funds, multi-asset funds and absolute return strategies, for savers who are cautious,’ McDermott said.

‘Timing the market is notoriously difficult.’

Likewise, McDermott warns that even in junior Isa accounts some three quarters of contributions are made into cash during the year after the product is opened. 

This is despite the accounts having a minimum time horizon of 18 years until the child reaches adulthood.

McDermott said: ‘When the money is locked away for 18 years or more, keeping it in cash simply doesn’t make sense. 

‘A stocks and shares Jisa gives children a far greater chance of a meaningful financial head start in adult life. 

‘Failing to realise this is one of the biggest investing mistakes parents can make.’

He added: ‘It’s never too late to make your money work harder, the Isa remains one of the best tools for long-term wealth creation; but to really benefit, savers need to think beyond cash.’

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