What the Budget’s New ISA Rules Mean for Cash ISA Savers
The Government has announced a major change to how ISAs work. From April 2027 the annual ISA allowance will remain at £20,000, but only £12,000 of that can be saved in a Cash ISA.
The remaining £8,000 must be placed in a Stocks and Shares ISA or another qualifying investment ISA. Savers aged 65 and over are exempt and will still be able to save the full £20,000 in cash.
This creates the first split allowance in the history of ISAs and marks a significant shift in how the Government wants people to save.
What it means for cash savers today
For savers under 65 the change is simple. The tax free space for cash is being reduced. If you want to keep saving in cash you will only be able to shelter £12,000 each year. To use the full £20,000 allowance you must place the remaining £8,000 into an investment ISA. For many people who prefer the security of cash this will feel restrictive.
Cash ISAs are used by millions of savers who value liquidity, predictability and zero exposure to stock market risk. Reducing the limit reduces the flexibility these savers currently enjoy.
Is the Government directing how people must save
The change does not remove Cash ISAs, but it directs savers towards investment products by reserving a portion of the allowance for stocks and shares. Some will welcome this nudge because long term investments can provide growth. Others will regard it as a reduction in their freedom of choice.
The policy reflects a wider push to channel more household savings into investment markets. Whether individual savers benefit will depend entirely on their risk tolerance and financial circumstances.
Will savers stop saving once they reach the £12,000 cash limit
For many cautious savers this is possible. Some people save specifically to avoid investment risk. Once they reach the £12,000 limit they may choose not to continue saving at all. Others may save above £12,000 but outside the ISA wrapper, which means losing the tax advantages.
For older savers aged 65 and over nothing changes. They retain the full £20,000 cash limit and continue using ISAs exactly as before.
How this could change saving behaviour
The new structure may produce three groups.
People who continue using both cash and investments to use the full £20,000 allowance.
People who cap their saving at £12,000 because they do not want investment risk.
People who move their surplus savings into ordinary accounts or fixed term products outside the ISA system.
Any of these behaviours could lead to lower overall saving levels in the Cash ISA market. Retail banks, building societies and community banks may see a shift in cash inflows as customers reach the new limit more quickly.
What this means for Wessex Community Bank
Wessex Community Bank will continue to offer Cash ISAs. These remain an important, stable and tax efficient way to save. The new rules do not change the benefits of our existing Cash ISA products. They simply introduce a lower annual limit for most savers.
We will update all product details before the new rules come into effect in 2027. In the meantime our focus remains unchanged. We offer safe, transparent and ethical savings products that support the region we serve. We are committed to helping members understand these changes and make informed decisions based on what is right for their financial goals.
The wider context
The Budget signals a long term shift in how the Government expects households to save. Cash will continue to play a vital role in personal financial resilience. Investment ISAs may suit some savers, but not all. The reduction in the cash allowance does not alter the need for secure cash products, especially in a community banking model where savings help fund local lending.
At Wessex Community Bank we will continue to support savers who value the certainty of cash and prefer simple accounts without unnecessary risk.