ISA savers have been urged to review their accounts after adult cash ISA balances swelled by £38 billion between January and May. The average adult cash ISA balance rose from £17,264 to £17,848 over the period, while the average held in non-ISA accounts slipped from £11,513 to £11,416.
Fixed-term products drove much of the growth, with fixed-term ISA balances climbing £28.8 billion to £269.9 billion. Instant access ISA balances also rose, by £9.6 billion to £203.5 billion, as savers moved to lock in rates ahead of possible interest rate cuts and changes to the tax-free savings landscape.
Why are savers so keen on cash ISAs?
Andrew Wright, head of savings at Paragon Bank, said the jump in balances showed savers still value the tax protection ISAs offer. “The £38 billion increase in adult cash ISA balances shows that savers continue to recognise the value of protecting their interest from tax,” he said.
“It appears many used the busy ISA season to make more effective use of the tax-free wrapper. The particularly strong growth in fixed-term ISAs also suggests that customers were keen to secure competitive rates amid expectations that interest rates could fall,” Wright added.
He also urged account holders to act ahead of the upcoming changes: “With changes to the cash ISA allowance planned from April 2027, savers should review their existing accounts, understand how much of their allowance they are using and ensure their money continues to work as hard as possible for them.”
What are the 2027 ISA rule changes?
In the Autumn Budget 2025, the Government announced that from April 2027 the cash ISA allowance would be cut from £20,000 to £12,000 for savers under 65. The limit for stocks and shares ISAs and innovative finance ISAs would remain at £20,000, and those aged 65 and over would keep the full £20,000 cash ISA allowance.
Under the new rules, interest earned on cash held inside a non-cash ISA will be subject to a flat-rate 22% charge. Investors can still hold cash in a stocks and shares ISA, but the charge will apply to any interest or alternative finance return. ISA managers will pay the charge to HMRC, and savers do not need to declare it. The charge applies regardless of income tax bracket and cannot be offset by the Personal Savings Allowance.
In addition, from April 2027 a stocks and shares ISA cannot be used purely to hold money market funds as a substitute for cash. Money market funds will only be permitted as part of a mixed portfolio alongside investments such as shares, bonds or other real assets. Other common ISA holdings, including individual shares, funds, investment trusts, exchange-traded funds and government or corporate bonds, will not count as cash-like assets under the measure.
Transfers from non-cash ISAs into cash ISAs will no longer be allowed, although transfers from cash ISAs into non-cash ISAs remain possible. For those aged 65 and over, the higher £20,000 cash ISA limit applies from the start of the tax year in which they turn 65, and the transfer restriction is lifted from that point. However, the 22% charge on cash interest held in non-cash ISAs and the ban on 100% cash-like portfolios will still apply.
What do industry experts say?
Not everyone is impressed by the reforms. Some industry experts have described the changes as a “dog’s dinner”. Rob Mansfield, an independent financial adviser at Tonbridge-based Rootes Wealth Management, criticised the complexity of the new rules.
“Given all the problems the country faces, is this really the best use of the Government's time? The whole beauty of the ISA was that it's a simple concept. Tax-free savings up to a limit,” he said. “Governments keep faffing around with it and are undermining savings. People tend to default to cash because they don't know any different, and investments seem scary. These attempts to cajole people into investments is never likely to work well.”
David Stirling, an independent financial adviser at Belfast-based Mint Wealth, warned the new rules would cause “chaos”. He said: “The new ISA rules are a masterclass in government policy that sounds coherent in a press release and disintegrates on contact with reality. Under-65s get a £12,000 cash ISA allowance, over-65s get £20,000, and the cut-off is not the State Pension age of 67 but the apparently magic number of 65, selected for reasons the government has yet to share with anyone.”
“You are simultaneously too young for your State Pension but old enough for preferential ISA treatment. Savers will need their birth certificate and a flowchart just to work out what they are allowed to do. The 22% charge on cash interest inside stocks and shares ISAs completes the chaos,” he added. “Older savers can sidestep it by transferring into a cash ISA. Younger ones cannot. Anyone locked into a fixed-term deposit inside an investment ISA maturing after April 2027 gets penalised for something they did entirely legally under rules since rewritten around them.”
What is the government hoping to achieve?
Former Chancellor Rachel Reeves announced the measures last November as part of the Government’s strategy to “develop a retail investment culture” to boost the economy and drive better returns for savers. Labour said the accompanying rules are designed to “ensure the policy achieves its objective” while minimising opportunities to get around the lower cash ISA limit and preserving flexibility for legitimate investment activity.
