Savers are being urged to shelter their nest eggs while they can after the chancellor unveiled sweeping tax increases on savings in her budget on Wednesday.
From April 2027 the amount you will be able to save tax-free into a cash Isa will be cut from £20,000 to £12,000 for under-65s while the tax rates applied to savings interest will rise by 2 percentage points.
Sarah Coles from the wealth manager Hargreaves Lansdown said the budget was a “shocking tax rise for savers”.
Basic-rate taxpayers can earn £1,000 interest a year on savings held outside an Isa tax-free and higher-rate taxpayers can earn £500 thanks to the personal savings allowances. Additional-rate taxpayers get no allowance.
A higher-rate taxpayer with £11,200 saved in an account paying 4.5 per cent interest would bust their allowance, earning just over £500 in interest. A basic-rate payer would bust the allowance with savings of about £22,300 in the same account.
From 2027 the basic-rate taxpayer will lose 22 per cent of their interest above the allowance to tax; the higher-rate taxpayer will lose 42 per cent. An additional-rate payer would lose 47 per cent of all their non-Isa savings interest to tax.
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Many savers use cash Isas to avoid paying tax on their interest, but with the allowance being cut to £12,000, anyone wishing to still put away £20,000 will have to find another home for the remaining £8,000. They could either invest it in a stocks and shares Isa, or put it in a non-Isa cash account — and try to avoid a tax bill.
At the moment you could earn 4.3 per cent on a one-year cash Isa from Tembo — £20,000 savings would earn £860 interest tax-free. If you were a higher-rate taxpayer who put £8,000 of that sum in a non-Isa account paying the same interest, you would lose £144 of your interest to tax, assuming that you had already used up your personal savings allowance.
But with the changes still more than 16 months away there is plenty of time to get organised and minimise the effects on your finances. Here are some of the things you can do.
Max out your allowances
You have until April 2026 to use this year’s Isa allowance and then you get a whole new one for 2026-27. This means you can still save up to £40,000 into a cash Isa — £80,000 for a couple — before the changes kick in.
Anna Bowes from the financial advice firm The Private Office, said: “Make sure you use it, or you’ll lose it as you cannot carry over any unused allowance.”
Bowes recommended checking the interest rates on your cash Isas, and switching if you can find a better deal. The top easy-access Isa rate is 4.47 per cent from the savings and investing app Moneybox, including a 0.77 percentage point bonus for the first year.
Get a transfer form from your new bank or building society and fill in the details of the old account. A transfer from one cash Isa to another should take less than seven days and should not count as part of this year’s Isa allowance.
Make use of the £9,000 annual Junior Isa allowance. You can get cash and investment Junior Isas and pay into one of each type in each tax year. They can be opened by parents or legal guardians for those aged under 18, and then anyone can pay into them. The child can manage the money at 16 and withdraw it at 18.
Laura Suter from the wealth manager AJ Bell said she expected cash Isa deposits to “explode in the next couple of years”.
A net £26.9 billion has been deposited into cash Isas since April, according to the Bank of England, including £2.4 billion in September.
Rosie Hooper from the wealth manager Quilter suggested that couples who have used up their personal savings allowances could hold taxable savings outside Isas in the name of the lower earner, to reduce the tax bill.
Buy Premium Bonds
You can hold up to £50,000 of Premium Bonds and instead of earning interest, you get the chance to win cash prizes in the monthly draws. All winnings are tax-free and prizes range from £25 to two monthly £1 million jackpots. Each £1 bond has a one in 22,000 chance of winning some sort of prize and the expected prize rate is 3.6 per cent a year. Your money is 100 per cent guaranteed because it is held by the Treasury-owned National Savings & Investments (NS&I) and you can withdraw it at any time.
Hooper said: “For many who value the certainty of cash, Premium Bonds could become a more attractive option. They offer capital security, easy access, and tax-free prizes — qualities that stand out even more when the tax burden on savings grows.
“While the odds of winning remain relatively low, for some savers it’s less about returns and more about peace of mind and flexibility.”
Because it is owned by the government, NS&I has a limit on how much money it can attract each year, but this was raised £1 billion to £13 billion on Wednesday, which means that the prize rate is unlikely to go down.
Invest without investing
Analysts suggest that savers who do not want to invest their money could simply open an investment Isa and leave the cash sitting there, without actually buying any funds or shares. Many investment accounts pay interest on uninvested cash, although the rates are unlikely to be as high as cash Isa rates.
JP Morgan Personal Investing pays the Bank of England base rate minus 0.75 percentage points (so 3.25 per cent at the moment) and BestInvest pays 3.23 per cent. Hargreaves Lansdown pays 1.75 per cent on the first £10,000 and 1.85 per cent on between £10,000 and £50,000.
• The best stocks and shares Isas in 2025
Jason Hollands from BestInvest, however, warned that there could be a clampdown by HMRC if too many savers were doing this to get round the reduction in the cash Isa limit. He said: “Cash within stocks and shares Isas is meant to be a temporary parking place for money awaiting investment.”
Another way round the cut to the cash Isa allowance would be to invest in what are known as money market funds.
These are usually very low-risk, and hold money in cash, or in short-term bonds issued by governments or large companies such as banks, to earn investors a return. Investors deposited a net £524 million in money market funds in September and £1 billion in July, according to the trade body the Investment Association.
Holly Mackay from the investment research website Boring Money said: “Changing cash Isa limits could mean people just use money market funds inside stocks and shares Isas if they want to use up the whole £20,000 allowance. It’s a bit like telling my teenagers that they can’t buy vodka from the local shop, while letting them buy it in a different bottle from the pub instead.”