Martin Lewis explains what's happening to cash ISAs over £20,000 fears

Martin Lewis, founder of MoneySavingExpert.com, has sought to allay fears among cash ISA savers over potential reductions in the tax-free allowance. He addressed concerns that Rachel Reeves is considering reforming the cash ISA system.

A cash ISA allows you to deposit up to £20,000 each tax year, with any interest earned on these savings being tax-free. There are also stocks and shares ISAs, where your money is invested in individual company shares.

The return on a stocks and shares ISA, unlike a fixed rate of interest, depends on the performance of the companies in which you've invested. Earlier this year, Emma Reynolds, Economic Secretary to the Treasury, advocated for increased investment in the stock market to stimulate economic growth, reports .

In the Spring Statement this March, it was confirmed that the Government is "looking at options for reforms" for the cash ISA - however, no announcements have been made yet. Martin Lewis reassured that even if changes were announced to the tax-free limit in the future, it wouldn't affect any money you already have in a cash ISA.

In a recent video posted on social media, he stated: "They're talking about lowering the limit of how much money you could put in in future, so there's no need to panic about your existing cash ISAs if the rumours are correct."

The financial expert highlighted the importance of timing for savers, remarking, "As for when it starts, well, if it is announced in the Autumn Budget, there's a chance it could start immediately so it would instantly lower your cash ISA allowance."

He noted the possibilities, stating, "Or there's precedent for ISA changes for them doing the change, announcing it in autumn and starting it in the January or starting it in April 2026 - the new tax year."

He advised: "For me, what all this means is if you are planning to save into a cash ISA this tax year and you've got the money, getting the money in sooner would seem safer - in case there is a risk of the allowance being cut."

Amid rising rates, savers are increasingly exposed to potential taxation on their savings interest. However, the requirement to pay tax on savings interest varies according to tax status.

Basic-rate taxpayers can garner up to £1,000 in savings interest annually without incurring tax, while higher-rate taxpayers have an allowance of £500, and additional rate taxpayers lack any such exemption.

When savings earnings surpass these limits, tax on interest becomes due. A statement from the government post-Spring Statement indicated a forward-looking approach: "The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.

"Alongside this, the government is working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest."