The Economic Secretary to the Treasury has questioned why there is so much money in cash ISAs and if action is needed to drive investment in the stock market instead
Chancellor Rachel Reeves is facing a storm of controversy as she’s reportedly being pushed to ditch or slash the cash ISA tax-free savings allowance. With more than 18 million Brits holding a cash ISA and a hefty near £300 billion stashed away, they’re a cornerstone of British savings.
However, the Government is getting an itch for change as Economic Secretary to the Treasury, Emma Reynolds, made a rousing call last week for cash to divert into the stock market to fire up economic growth. Customers have the choice between earning interest on their savings with cash ISAs or rolling the dice with stock market-linked returns in stocks and shares ISAs.
In a bold pitch to the House of Lords committee, Ms Reynolds slammed the status quo: “Why do we have hundreds of billions of pounds in cash Isas? … What can we do together in parliament about trying to drive an investment culture that realises cash is not a good investment, especially in a high-inflation environment?”
However, there are heavyweight arguments supporting cash ISAs as crucial financial arteries pumping funds into banks and building societies. Championing their value, Robin Fieth, the big boss of the Building Societies Association, said: “Cash ISAs help consumers to achieve their savings goals. They play an integral role in the UK savings market and have done for many decades. They represent a policy success upon which we should seek to build, rather than to curb,” reports the Mirror.
But what is a Cash ISA and do Brits need to act now?
Savers can tuck away up to £20,000 every tax year into an ISA and enjoy the perk of completely tax-free interest. This has become especially critical in recent times after savings rates got a boost, as there’s a limit on how much interest you can earn before taxman comes knocking.
Basic-rate taxpayers have a personal savings allowance of £1,000 annually, whilst higher earners are capped at £500, and additional rate payers don’t get a penny of allowance. Watch out—earn more than these levels and you’ll be forking out tax on your savings interest.
Rumours have been swirling about cash ISAs getting the boot. But right now, it’s all whispers and hearsay—no official word yet.
The MoneySavingExpert.com guru Martin Lewis has told savers to carry on regardless. On his X/ Twitter feed, he set the record straight: “There is no news, there’s lots of speculation written up as news, but absolutely zilch has been announced. In fact I doubt anything has been decided yet (though it is being discussed).
“To those asking should I take money out of ISAs. If there are changes it will almost certainly (nothings 100%) be on how much you can contribute in future. It would be very unlikely to impact any money already in cash ISAs. So don’t do any panic moves, just keep going, nothing has happened.”
A Treasury spokesman said: “We want to help people save for their future goals and build greater financial resilience across the country. We keep all aspects of savings policy under review.”
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