A financial expert has warned that Chancellor Rachel Reeves' overhaul of the ISA system is producing 'unintended consequences', as savers rush to deposit money into Cash ISAs before the allowance is slashed. In last year's budget, Reeves announced that from the 2027/28 tax year, those under 65 will only be able to deposit £12,000 a year into Cash ISAs, down from the current £20,000. Additionally, interest on uninvested funds in Stocks and Shares ISAs will be taxed at 22 per cent. The aim is to encourage more people to invest in stocks and shares, which historically outperform cash and help beat inflation.
Record Cash ISA Inflows
Figures show that Brits are scrambling to open new Cash ISAs and deposit as much as possible before the rule change. A staggering £12 billion was funnelled into Cash ISAs in April 2026, one of the highest monthly totals on record. Sarah Coles, head of personal finance at AJ Bell, said: 'This tax year is the last chance for under 65s to pay in up to £20,000 before their allowance is cut to £12,000 from April 6 2027. It means they're filling their boots while they can. 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.'
Unintended Consequences
Coles noted that the rush to Cash ISAs 'lays bare the unintended consequences of cutting the Cash ISA allowance'. She emphasised that cash plays a vital role for everyday expenses, but beyond an emergency fund, investing in a Stocks and Shares ISA may offer better long-term returns. '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, so you can build a valuable nest egg,' she added.
Savers Shift to Fixed-Rate Accounts
Interestingly, while money flowed out of easy access accounts, savers also moved into fixed-rate accounts. Coles explained that 'inflation expectations at the time, plus competition in this market, has nudged rates higher, while easy access rates stagnated. Savers are realising the benefits of fixing savings that they won't need for a period in return for more interest.' She warned that savers often keep too much in easy access accounts out of comfort, but should consider tying up funds they won't need for longer to maximise returns.
Mortgage Market Impact
Separately, mortgage approvals dropped in May, as early spring buyer enthusiasm waned. Coles noted that 'at this stage, there was no end in sight for the Iran war, and inflation expectations had pushed mortgage rates higher through March and April.' She added that it remains to be seen whether the peace agreement and emerging optimism in June will bring buyers back to the property market.
