Cash ISAs attracted £4.2 billion in deposits in March, a 31% increase on the same month in 2024, as savers braced for global economic uncertainty and factored in rumors the ISA allowance could soon be slashed.
According to fresh data from the Bank of England, £7.4 bn was deposited into bank and building society accounts in March, an increase on a previous uplift in February. Cash ISA deposits made up most of the inflows. This came ahead of the equity market volatility in April.
“Consumer confidence was low in the first quarter of the year as households got to grips with the implications of Rachel Reeves’ ‘painful’ Budget in October last year,” says Alice Haine, personal finance analyst at Bestinvest.
“Add in uncertainty triggered by US tariff policies and an impending jump in everyday bills in April and it’s no surprise to see households battening down the hatches and stashing more cash.”
But speculation over the ISA allowance also drove the increase, experts say as the Autumn Statement launched an official “review” into the ISA, which is now 26 years’ old.
“There’s usually a spike in people stuffing their ISAs before the tax year-end, but the speculation around changes to ISAs put the rockets under that this year,” says AJ Bell personal finance expert AJ Bell.
If that speculation proves accurate, retail banks, building societies, and platform providers could witness a further spike in deposits before any change takes place as savers take advantage of the existing rules.
Is The Cash ISA Allowance at Risk?
The popularity of cash ISA products is hardly surprising.
Though they are expected to fall next week, UK interest rates are still relatively high at 4.5%. Cash ISA products are still the primary way savers engage with the ISA system.
Nevertheless, speculation is mounting that the £20,000 ISA allowance could be heavily reduced at the Autumn Budget in October as the government weighs up its limited fiscal headroom and broader efforts to stimulate economic growth.
The current £20,000 ISA limit is frozen until at least 2030.
However, the government’s so-called “fiscal headroom”—the amount of money it can either spend or reduce taxes by without breaching its own fiscal rules—is under scrutiny in the wake of significant tax rises and the ongoing impact of the Trump administration’s protectionist policies on markets and economies.
In 2024, the UK economy grew by 1.1%. But many now fear tariffs launched by the US Trump administration will have a further negative effect. Among them is Bank of England Governor Andrew Bailey, who last week suggested a trade deal with the US might not shield the UK from the worst effects of the tariffs.
On May 8, the Bank will publish its latest rate decision alongside an economic outlook that will give investors greater clarity on its expectations for economic growth in the wake of US President Donald Trump’s protectionist trade war.
Will UK Savers Become Investors?
Partly in a bid to stimulate economic activity, the government says it wants savers and businesses to invest more money in UK businesses via the pension and ISA system. Fund management companies have been lobbying for a larger slice of the ISA pie.
Michael Summersgill, chief executive of AJ Bell, said in March that while scaling back cash ISA allowances could push people toward investing, AJ Bell research found that only one in five people said they would invest in the UK stock market instead if the cash ISA allowance was reduced or abolished.
Is it therefore likely that the Autumn Budget will bring a renewed focus on the pivot away from cash? Even without any official announcement from the Treasury, one influential voice in personal finance appears to think so.
“The chancellor, Rachel Reeves, has been evaluating cutting the cash ISA allowance. That’s not a rumor. I know it for fact,” says MoneySavingExpert founder Martin Lewis in a video to savers online.
“What we don’t know is if anything has been decided and if it has, what has been decided. They [the Government] believe that if you cut the cash ISA limit more people will invest, and I suspect the chancellor thinks that would be better for the economy.”
Nevertheless, Lewis is not convinced such a plan would work.
“Personally, [I think it] will probably just mean many savers will pay more tax on their savings,” he says.
“If you want more people to invest, we should be doing a proper national education program about what investing is and how you do it.”
What Are The Current ISA Allowances?
At the moment, the total ISA allowance across cash and stocks and shares products is £20,000. That means savers can place a maximum of £20,000 in ISA accounts across cash and stocks and shares products. Savers cannot put £20,000 in cash AND stocks, but can mix and match amounts up to the allowance. Eg. In one tax year, an individual could have £10,000 in a stocks and shares ISA with one provider and £10,000 a cash ISA provider.
The ISA allowance has been raised progressively over time. In the 2016-17 tax year it was £15,240, and rose to £20,000 by 2017-18 thanks to increases at government Budgets. At the Autumn Budget last year, that allowance was frozen until 2030.
While this might sound like a move that would be welcomed by savers and investors, it constituted a subtle announcement that the allowance would not be uprated in line with inflation for five years. The practical effect of such a policy is a higher tax amid rising inflation—a concept known as “fiscal drag”.
It’s worth remembering the ISA allowance is different from the personal savings allowance. The latter allowance permits basic-rate taxpayers to receive £1,000 in interest tax-free outside of the ISA. For higher-rate taxpayers the allowance is £500.
Sunniva Kolostyak contributed to this article.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
