Cash Isa annual allowance to fall to £12,000 — depending on your age

The amount you can save in a cash Isa each year will fall from £20,000 a year to £12,000 under plans unveiled in the Budget.

The move will mean that from 6 April 2027, you won't be able to shield as much of your savings interest from the taxman.

Although the overall Isa allowance of £20,000 remains, £8,000 of that is reserved exclusively for stocks and shares Isas, leaving a maximum of £12,000 for cash Isas.

However, over 65s will be exempted from the limit, and will still be able to put £20,000 in cash Isas.

The curbs on cash Isas are particularly painful for savers who, from April 2027, will also have to pay a higher rate of tax on savings outside of Isas.

Here we'll explain how cash Isas work, how savings are taxed and what this change means for your money.

Why is this happening?

The change is intended to boost the economy. Chancellor Rachel Reeves hopes that it will encourage savers to switch to stocks and shares Isas, increasing individual returns and supporting British businesses.

More than twice as many cash Isas were opened in 2023-24 (9.94 million) than stocks and shares Isas (4.09 million).

Yet it's a controversial decision. In October, the Treasury Committee urged the government to keep the current £20,000 limit, claiming a cut would incentivise few savers to switch to investing.

It also said the move could harm mortgage lending, as building societies rely on cash Isa deposits to fund their mortgage businesses.

Less than a third (28.5%) of cash Isa subscriptions were £12,500 or above in 2022-23, according to the most recent data. The average subscription that year was £5,296.

Based on these figures, a majority of cash Isa holders will likely be unaffected by the reduced limit.

• Find out more: Best cash Isas 2025 

Why are over-65s exempted?

Although most people will only be able to add £12,000 to cash Isas from April 2027, over-65s will be able to add £20,000.

Defenders of the current £20,000 allowance have argued that older people may have extensive retirement savings that they need immediate access to for everyday living.

In contrast, the stocks and shares Isas which the government wants to push more people into are designed for people who don't need the money for at least five years.

Although most stocks and shares Isas let you sell investments and withdraw money in a matter of days, the risk is you sell during a market dip while prices are low, and make a lower profit or a loss.

How do cash Isas work?

A cash Individual Savings Account (Isa) is essentially the same as a traditional savings account, except the Government limits the amount of cash you can deposit in each tax year, and you don't pay any tax when you earn interest.

The annual limit for cash Isa deposits has stood at £20,000 since April 2017, when it rose from £15,240.

Anyone over the age of 18 can open a cash Isa, and reforms introduced in April 2024 mean you can now open and/or pay into multiple Isas each tax year, as long as you don't exceed the overall deposit limit.

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How is my savings interest taxed?

Interest is subject to income tax — with a higher rate, just for savings, dividends and property income set to begin in April 2027.

However, even when money is kept in an ordinary savings account, many people will pay no tax on the interest due to a number of different tax-free allowances.

The personal savings allowance lets basic rate taxpayers earn up to £1,000 in savings interest a year before paying tax, and higher-rate taxpayers earn up to £500. 

Based on the highest interest rate paid by a widely available savings account today (4.4%), you'd need to have at least £22,728 saved as a basic rate taxpayer to incur a bill. A higher-rate taxpayer would need £11,364. 

Other allowances apply to those with low or no incomes.

Low earners on less than £17,570 could earn up to £5,000 in savings interest tax-free – known as the starting rate for savings.

And if you have not used your basic personal allowance of £12,570 on your wages, pension or other income, then you can use your personal allowance to earn savings interest tax-free.

• Find out more: how your savings are taxed.

Are Premium Bonds an alternative to cash Isas?

Owning NS&I Premium Bonds enters you into a draw where the prizes are entirely tax-free, even if you win the top prize of £1 million.

However, you can only hold up to £50,000 in Premium Bonds.

Plus, as it's a lottery, there's a chance you could win less than you would have got in interest from a savings account (even after it has been taxed) — or nothing at all.

NS&I can and do tweak the amount of money available for prizes, and the odds of winning higher or lower prizes.

• Find out more: discover if you've won a Premium Bond prize

Are stocks and shares Isas risky?

This depends on what you hold in them. 

It is possible to hold cash in stocks and shares Isas, though you'll typically receive minimal interest and see your money eaten away by investment platform fees.

Although all investments involve some risk of losing your money some are more volatile than others. 

The prices of equities (investments in companies) will move around far more often than bonds (loans to companies and governments). And more risk tends to mean more potential for growth.

It's also possible to buy money market funds, which behave like cash, and usually generate returns similar to those of a savings account.

If the investment platform you hold your stocks and shares Isa with goes out of business, you'll be covered by the Financial Services Compensation Scheme up to £85,000, rising to £120,000 from the start of December.

Finally, keep in mind that holding cash in a cash Isa that pays less than the rate of inflation means that your money's value will fall over time.

• Find out more: Best stocks and shares Isas 2025