BUDGET 2026: What you need to know if you’re a saver

The big news for savers is that the planned cut to the Cash ISA annual allowance, announced by former Chancellor Rachel Reeves last year, will not now go ahead.

This means you can continue to put up to £20,000 a year into a Cash ISA, where your savings interest is tax-free. The planned reduction to £12,000 for under-65s was due to take effect from April 2027.

However, there’s another important change: tax on savings interest outside ISAs will rise from April 2027.

But what does this mean for your savings, and should you change anything about how you’re putting money aside?

You can keep saving up to £20,000 in cash tax-free

An ISA, or Individual Savings Account, is a type of account that protects your money from certain taxes. With a Cash ISA, you earn interest on your savings without paying tax on that interest.

You can save up to £20,000 across your ISAs each tax year. This is your annual ISA allowance, and you can split it between Cash ISAs and other types of ISA, including Stocks and Shares ISAs.

The planned cut would have restricted how much people under 65 could put into Cash ISAs to £12,000 a year, although the overall £20,000 ISA allowance would have remained.

Scrapping the cut means you can continue to put the full £20,000 into cash if you wish, rather than having to put some of it into investments to make use of your allowance.

What you can do: If you prefer cash savings and usually put away more than £12,000 a year, you don’t need to change your plans because of the proposed cut. However, make sure you’re getting a competitive interest rate. Your ISA allowance is valuable, but that doesn’t mean every Cash ISA offers a good deal. We’ve rated Cash ISAs paying the top rates of interest, here.

Tax on savings interest outside ISAs is going up

From 6 April 2027, the tax rates applied to savings interest outside tax-free accounts will rise by a further two percentage points. The new rates will be 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers.

This doesn’t mean everyone with savings outside an ISA will pay more tax. The Personal Savings Allowance will remain in place, allowing most basic-rate taxpayers to earn up to £1,000 in savings interest a year tax-free, and most higher-rate taxpayers up to £500. Additional-rate taxpayers don’t receive a Personal Savings Allowance. Some people with lower incomes may also qualify for the starting rate for savings.

But if your interest exceeds the allowances available to you, you’ll pay more tax on the taxable amount from April 2027.

What you can do: If you have substantial savings outside ISAs, check how much interest you’re likely to earn and whether it could exceed your tax-free allowances. You may want to consider using your ISA allowance to shelter more of your savings from tax, particularly if you expect to keep the money for some time. But make sure you choose an account that suits your needs and offers a competitive rate.

Should you keep your savings in cash?

Cash savings can be a sensible choice if you need access to your money or want to avoid the risk of your savings falling in value.

For example, if you’re building an emergency fund to cover unexpected expenses, saving for a house deposit or putting money aside for a holiday next year, a Cash ISA could be ideal. Your savings won’t fluctuate with the stock market, and you can choose an account that allows you to access your money when you need it. Just check the terms, as some accounts restrict withdrawals or offer better rates if you leave your money untouched.

However, cash isn’t always the best choice for money you won’t need for many years.

Over time, inflation – the rate at which prices rise – can reduce what your savings can buy. If your interest rate is lower than inflation, your money may grow in pounds but lose purchasing power.

Historical analysis from Barclays has illustrated how inflation can erode the real value of cash savings over time, while investments have the potential to grow faster. However, investment returns aren’t guaranteed, and investments can fall in value as well as rise.

What you can do: Think about when you’ll need your money before deciding where to keep it. Cash can be useful for emergencies and short-term goals, while longer-term savings may benefit from a different approach if you’re comfortable taking investment risk.

Could a Stocks and Shares ISA be better for you?

Even though the Cash ISA limit won’t now be cut, it’s still worth considering whether a Stocks and Shares ISA could be helpful if you haven’t considered one before.

A Stocks and Shares ISA allows you to invest your money in things such as company shares, bonds and investment funds. Like a Cash ISA, it offers tax advantages, but your money is invested rather than simply earning interest.

Investments can rise and fall in value, so you could get back less than you put in. However, investing may offer greater potential for growth over the long term, although returns are never guaranteed.

This means a Stocks and Shares ISA may be worth considering if you’re saving for a goal many years away and are comfortable taking some risk with your money.

You don’t need to choose between cash and investments exclusively. You can hold both types of ISA and divide your annual allowance between them, up to the £20,000 limit.

What you can do: If you’ve already started putting money into a Stocks and Shares ISA because you expected the Cash ISA limit to fall, don’t rush to sell your investments or move your money. Instead, consider why you invested in the first place, when you’ll need the money and whether you’re comfortable with the level of risk you’re taking.

The reversal of the Cash ISA cut doesn’t automatically make investing the wrong choice.

What if you’ve already used your ISA allowance?

If you’ve already paid £20,000 into your ISAs during the current tax year, the announcement doesn’t give you a new allowance. The limit applies across your ISAs combined, not separately to each account.

If you’ve used only part of your allowance, you can continue to make use of the remainder before the tax year ends on 5 April 2027, subject to the usual ISA rules.

If you’re considering moving money between ISAs, check the transfer rules with your provider. Using the formal ISA transfer process can preserve the tax-free status of money you’ve already saved.