Chancellor Rachel Reeves' decision to slash the Cash ISA allowance to £12,000 for under-65s has backfired, sparking a rush of deposits rather than encouraging investment, according to financial experts. Sarah Coles, head of personal finance at AJ Bell, described the trend as an 'unintended consequence' of the policy, which aims to steer savers towards stocks and shares.
Record Cash ISA inflows in April 2026
Data shows that Britons poured £12 billion into Cash ISAs in April 2026, one of the highest monthly figures on record. This surge comes ahead of the allowance cut from £20,000 to £12,000, effective from April 6, 2027. Coles noted that savers are 'filling their boots while they can,' with May also seeing elevated activity. 'For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the government would have been hoping for,' she said.
Policy details and government intent
In the 2025 Budget, Reeves announced that from the 2027/28 tax year, under-65s would face a reduced Cash ISA limit of £12,000. Additionally, interest on uninvested funds in Stocks and Shares ISAs will be taxed at 22%. The Chancellor's aim is to promote investment in assets like stocks and shares, which historically outperform cash and beat inflation. However, the policy appears to have triggered a defensive move by savers seeking to maximise their tax-free cash holdings before the rules tighten.
Expert advice on savings strategy
Coles emphasised that cash remains essential for short-term needs, recommending three to six months' worth of essential spending in easy-access accounts. But for longer-term goals, she suggested considering Stocks and Shares ISAs: 'In the short term you may see the ups and downs of the stock market, but in the long run, it has a far better chance of beating inflation.' She also noted a shift towards fixed-rate accounts as savers lock in higher rates, while easy-access rates have stagnated.
Broader economic impact
The dash for cash comes amid broader economic uncertainty, including the Iran war and fluctuating mortgage rates. Mortgage approvals dipped in May, with buyers hesitant due to higher rates and geopolitical turmoil. Coles observed that the recent peace agreement might restore confidence, but the property market remains fragile. 'We will have to wait and see whether the peace agreement and more optimism emerging in June persuades buyers back to the market,' she added.
