Why you should assess if cash ISAs are still right for you
While the government rowed back on potential changes to cash ISAs – for now – it is important for savers to be aware of the rules, and to think about whether they need to make any changes to how they are preparing for their future.
What’s happening to cash ISAs?
Reports leading up to last night’s Mansion House speech – including recently in the Financial Times¹ – suggested that the Chancellor Rachel Reeves could limit the amount of money that can be saved into tax-free cash accounts each year. (Currently you can save up to £20,000 in a cash ISA, or a stocks and shares ISA, or by using a combination of the two.)
The plan touted was to reduce this annual limit for cash ISAs potentially down to as low as £4,000, but to keep the overall tax-free limit of £20,000. The rationale for this was that more money could be diverted by savers to invest in the shares of UK companies, thereby possibly boosting growth in these firms and the economy overall.
Yet there was no evidence this would happen, with many in the financial industry saying it was an unworkable ambition – and, according to the BBC: “strong opposition from banks, building societies and consumer campaigners mean any such move has been put on hold.”
So the plan was shelved for the time being subject to further consultation, with Reeves saying last night she would "continue to consider further changes to ISAs, engaging widely over the coming months." The initiative may or may not be resurrected in the future, but as was reported in the Sunday Times² at the weekend: A raid on your cash Isa is still a very real threat.
Don’t empty your cash ISA savings
Whatever happens in future, those with savings in cash ISAs should know that their money is safe – any pot you have built up in a cash ISA over time won’t be touched by the government. So as with any actions around your money, we always encourage caution and to seek advice if need be, especially if you have a large sum in a cash ISA, or even in a bank account.
However, please note, you don’t need to do anything. Any money accrued in a cash ISA still retains its tax-free status – it is only future contributions to the cash element of the tax wrapper which could be lowered if the plan is revived.
An alternative you can consider for cash savings
We frequently talk about the need to assess your overall financial situation, including the concept of risk, and how much you should take to achieve your goals. While everyone’s views on risk are usually quite personal, a key point to consider is whether too much of your assets could be tied up in cash – as the effects of inflation can seriously diminish its real value over time.
If you want an alternative to cash savings and are still unsure about taking risk – yet would like the benefit of being ready to invest if it suits you – you can consider the Netwealth Liquid Reserves Portfolio. This pays a very competitive 4.3% gross and account holders enjoy all the flexibility of quick access to their money and from being a Netwealth client.
Income – with all the Netwealth benefits
Please note that while liquidity is available, capital is still at risk.
The portfolio is made up of low-risk money market funds and ultra-short term bonds and can be used for pension or ISA assets. As a client you enjoy the full benefits of Netwealth: being able to control your money with ease, plan effectively with powerful tools, and access to comprehensive financial advice if you need it.
Get an impartial evaluation of your situation
Potential changes to regulations or in your own circumstances can present a good opportunity for you to evaluate if you are doing the right things to maximise your financial situation. Many individuals and couples opt for a Financial Planning MOT to see if they are on track – and find out what they can do to make changes for the better.
This article explains how a financial planning MOT could provide a welcome boost to your finances, how it works, and what’s included.
Even managing a considerable cash holding can have its challenges – and if you want to find out more about how we can help you assess your situation, or any aspect of your savings and investments, please get in touch.
Please note, the value of your investments can go down as well as up.
Netwealth offers advice restricted solely to our services. We do not consider the whole of the market, nor offer advice in relation to tax compliance, insurance products, or the transfer of defined benefit pensions.
We do not endorse the views expressed by third parties.
