Budget 2025: Cash ISAs in focus

When Chancellor Rachel Reeves delivers the Budget on 26 November, one of the key questions for savers will be whether the rules on ISAs could change.

The £20,000 allowance: unchanged, but still under review

Back in July, Reeves confirmed that the £20,000 annual Cash ISA allowance would remain in place. This was a relief after months of speculation that the government might cut the limit to encourage more people to invest in shares instead.

For now, savers can still shelter up to £20,000 a year from tax across ISAs, whether in cash, investments, or a mix of both. That makes it one of the most generous tax breaks available – and one of the few ways left to earn completely tax-free interest.

But while the Chancellor has stepped back from cutting the allowance this time, she has also made it clear that she wants more of the £300bn currently sitting in Cash ISAs to be redirected into investments that support long-term growth. That means reform could still return to the agenda, even if not in this Budget.

Cash ISAs: still valuable, still underused

Despite being a simple and flexible way to save, Cash ISA uptake has declined over the past 15 years. According to HMRC, around 12.4 million Adult ISA accounts were subscribed to in 2022–23, compared with 15 million in 2011.

Yet for many, Cash ISAs remain useful – particularly for building an emergency fund or saving for short- or medium-term goals. Their main benefits include:

• Tax-free interest: all returns are shielded from tax, regardless of the rate.
  
• No withdrawal penalties: unlike some fixed-term products, flexible Cash ISAs let you access your money when needed.
  
• Allowance flexibility: you can split your £20,000 limit between Cash and Stocks and Shares ISAs as you see fit.

The challenge is that many savers leave cash in low-yielding ISAs or savings accounts. Some high street banks still pay less than 2% interest on instant access accounts, even after years of higher inflation and central bank rates. Shopping around for a competitive Cash ISA can make a significant difference to your returns.

Saving vs investing: a balancing act

The UK is often described as a nation of savers rather than investors. According to the Office for National Statistics (ONS) at the end of 2024, the household savings ratio stood at 12%, yet much of this sits in current or savings accounts with very low yields.

Also, only around a third of adults have a Cash ISA and just 16% hold a Stocks and Shares ISA, despite the potential for higher long-term returns.

While investing carries more risk and past performances aren’t an indication of future returns, a diversified portfolio has historically delivered average returns of around 5-7% per year (net of fees). For long-term goals, that growth potential can help offset the erosive impact of inflation on cash savings.

It’s this shift – from cash towards investing – that the government is keen to encourage.

What this means for you

For now, nothing changes: the £20,000 ISA allowance remains in place. But with reform still being considered, the November Budget could provide the clearest sign yet of how future governments want to shape saving and investing behaviour.

As a saver, it’s worth asking yourself:

• Am I making the most of my allowance before any potential changes?
  
• Is my cash earning a competitive rate, or could it work harder in a better Cash ISA?
  
• Should I balance cash with investments to give my long-term wealth more growth potential?

The bottom line

The November Budget is unlikely to bring immediate changes to Cash ISAs, but the direction of travel is clear. The government wants to foster a stronger culture of investing, and that could mean tweaks to the ISA system in the future.

For now, the £20,000 allowance remains a powerful way to protect your returns from tax – and a chance to think carefully about how you could split it between cash and investments.

Make the most of your Cash ISA with Moneyfarm

You don’t need to wait for the Budget to act. With a Moneyfarm Cash ISA, you can take advantage of today’s generous allowance and make your money work harder.

• Earn daily interest
  Watch your savings grow every day from the moment your deposit is received.
  
• Flexible and accessible
  Withdraw up to three times a year without impacting your rate, and top up anytime, fee-free.
  
• Secure and protected
  Your cash is held with trusted partners and safeguarded with FSCS protection up to £85,000.
  
• Free ISA transfers
  Consolidate your savings with no transfer fees, making it simple to manage all your ISAs in one place.