Rachel Reeves is reportedly set to reform ISAs. (Image: Getty)
TABLE OF CONTENT Money market funds through stocks and shares ISA Premium bonds Contributing more to personal pension Fixed rate bonds and national savings arrangements
Experts have revealed four ways savers can outfox Rachel Reeves as she is set to announce a major change to savers' accounts. The Chancellor is expected to cut the tax-free limit of a cash ISA from ￡20,000 to ￡10,000 in a bid to get more money into stocks and shares rather than cash. Individuals can at the moment deposit ￡20,000 a year tax-free across all types of ISAs - including cash ISAs, stocks and shares ISAs, lifetime ISAs, and innovative finance ISAs.
There is no separate cap on the cash portion, which means the full ￡20,000 can currently be held in cash if preferred. But Ms Reeves is believed to be plotting to force any tax-free savings above ￡10,000 into stocks and shares rather than cash. The plan has been denounced by some of those in the know as “delusional” and “electoral suicide”. Account holders throughout the country are likely wondering what they can do to avoid being hit by the policy. Below are some possible courses of action mentioned by personal finance specialists.
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Reeves' rumoured policy is thought of as a blow to savers. (Image: Getty)
Money market funds through stocks and shares ISA
Andrew Prosser, head of investments at InvestEngine, said: “But for savers worried about a potential cut to the cash ISA allowance, one alternative could be investing in Money Market Funds through a stocks and shares ISA. These funds typically track overnight Bank of England rates and invest in low-risk things like government debt. It means they offer relatively stable, if slightly lower, returns compared to other types of investments. But most importantly, any returns are tax-free.
“The Government is unlikely to reduce the allowance for investment ISAs, and historically, investments in the stock market have outperformed cash savings over the long term. It means Money Market Funds could enable individuals to continue putting money away in a tax-efficient way through an investment ISA, while providing a low-risk entry point for those new to investing. This can help build confidence and experience before exploring other types of investments that can help grow long-term wealth.”
Nicholas Hyett, Investment Manager at Wealth Club, said: “Money market funds are usually run by banks and invest in extremely short term, low risk loans. These are the kinds of assets that underpin a conventional, easy-access savings account. However, because you have direct exposure to the underlying investments, rather than being intermediated by a bank, a money market fund is eligible to be held in a stock and shares ISA, and often offers a slightly higher rate of interest too.
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“One thing we should add, is that while a cut to the cash ISA allowance may appear less than ideal for investors, there is a certain logic to it. Savers who consistently max out their cash ISA allowance year after year clearly have surplus income and should really be thinking about investing, rather than holding all their money in cash. However, the risk is that new investors make poor investment decisions – so this proposal relies on the accessibility of high quality financial advice for those who need it.”
Colin Low, Managing Director at Kingsfleet said: “If the longer term is an option and an investor can tolerate greater risk, then Stocks and Shares ISAs should still form part of an investor’s planning.
“The blending of higher risk (shares) and lower risk (bonds) will always be arranged by a quality IFA.”
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Premium bonds
Nicholas Hyett, Investment Manager at Wealth Club, says an option available to savers is to make use of premium bonds.
He added: “These are essentially loans to the government. However, unlike conventional bonds there’s not a fixed rate of return available. Instead, investors are entered into monthly prize draws that pay out an average rate of 3.6% (from August 2025) - though individuals could experience win rates that are either much higher or much lower.
“The maximum prize is ￡1million and the minimum prize is ￡0. Crucially these prizes are tax free and the bonds themselves can be sold at any time – not unlike a cash ISA – though you can only hold a maximum of ￡50,000.”
Andrew Prosser, Head of Investments at InvestEngine, said: “Other tax-efficient products, such as Premium Bonds, could also be an option. While they don’t pay interest or dividends, any prizes won are tax-free.”
Contributing more to personal pension
Mr Prosser added: “For those saving for later in life and still want to put money away tax-free, they could consider contributing more to a personal pension.
“Contributions benefit from tax relief, meaning the government effectively adds to what you save.”
Martin Lewis breaks down the best interest rates on ISAs
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Fixed rate bonds and national savings arrangements
Colin Low, Managing Director at Kingsfleet: "There are still Fixed Rate Bonds offering rates exceeding 4% but interest will be taxable.
“There are occasional National Savings arrangements which also offer competitive rates.”
Anita Wright, Chartered Financial Planner at Anita Wright, said there was no need to move your money if you have a Cash ISA “unless it aligns with your broader financial objectives”.
She added: "For basic rate taxpayers, ￡20,000 in a standard savings account may yield higher returns than a Cash ISA, especially with the ￡1,000 personal savings allowance allowing interest to be earned tax-free.
"Cash ISAs tend to benefit higher or additional rate taxpayers, who receive a reduced or no personal savings allowance, though those individuals may also wish to consider stocks and shares ISAs for potential long-term growth if comfortable with investment risk.
Scott Gallacher, Director at Rowley Turton, also thinks savers should not overreact. He said: “The speculation is about reducing future ISA allowances, not about affecting money already held in existing ISAs.
“So if you’re likely to be affected by the suggested changes, my advice would be to maximise your ISA contributions sooner rather than later while the current rules remain in place.”
Samuel Mather-Holgate, Independent Financial Adviser at Mather and Murray Financial, said he did not expect Reeves to go through with the plans.
Rachel Reeves is thought to want to change the rules around ISAs. (Image: Getty)
He added: “This Government, and this Chancellor, are so unpopular now that this would be electoral suicide. It simply can't happen. However, if you don't need your cash in the next five years, you should really be investing your money rather than keeping it in cash.
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“Cash is the only way you are sure to erode its value over the long term. Reeves will have learned that tinkering with the small stuff doesn't bring in much money and really annoys people whose views can be the loudest.”
Wes Wilkes, CEO at IronMarket Wealth, said the move was a waste of time. He said: “The Government and think tanks are completely out of touch. If they think halving the Cash ISA allowance is going to make a jot of difference to UK-centric investing, they’re utterly delusional.
"Cash ISA holders either use them for cash reserves or because they’re still scared to invest. ￡10k a year isn’t going to make a jot of difference to the way people think or behave. It's a pointless waste of policy and paper.”