Saving up for a dream home, a holiday of a lifetime or just a rainy day? Then you might want to take note of upcoming changes which could impact your savings.
Last November, Chancellor Rachel Reeves announced upcoming changes to the way in which Brits are banking their cash, with ISA caps reducing from £20,000 to £12,000 from 6 April 2027.
The change will impact anyone aged under 65, which I'd assume is the vast majority of people reading this article.
These aren't the only incoming changes which could make a dent in your savings, with the Chancellor also planning to raise tax on savings and rental income by two percent.
Advert
With just over 11 months to go until the changes come into effect, here's what you need to know.
What do I need to do to make the most of my savings?
Finance educator Mathew Gay, aka The Quid Squid, previously told LADbible that it's a 'use-it-or-lose-it' situation when it comes to making the most of your tax-free ISA allowance, and this definitely applies to any savings you bank before April 2027.
What are the benefits of using an ISA?
So you may be thinking, 'What's the point in moving my money across multiple accounts when I can keep it in one place?' which is a valid question.
However, the benefit of using an ISA to build your savings comes from the fact that any interest your money generates isn't taxed – regardless of the tax bracket you fall into.
The interest rates are also higher on ISA savings accounts, for example:
- A typical flexible savings account has an average of 1.05% interest
- An ISA has an average of 4.50% to 4.65%, depending on whether you're using a fixed rate or an easy access account.
If you're yet to utilise the potential benefits of an ISA account, then it might be time to have a look at your savings and make sure you're getting the best available value for money.
Why is the ISA limit being reduced?
The cap on ISA savings isn't being reduced without offering some form of incentive, as any amount over £12,000 deposited into a cash ISA will be moved into a Stocks and Shares ISA.
Like cash ISAs, interest on anything placed into a Stocks and Shares ISA is once again tax-free, with the changes aimed at encouraging people to place their money into investments rather than leaving it to gather dust.
Interested in investing? Here are a few tips Gay has on how to get started:
- Audit your finances to see how much money you have left over each month
- Build a diversified portfolio where your money is 'spread across loads of businesses,'
- Don't rush any investment decisions.
Brenna Cooper