ISAs allow those with cash to put aside their money to earn interest without having to pay tax on it.
But the Building Societies Association told Reeves it “strongly” disagreed with the proposal.
An ISA – individual savings account – is a type of product where you never pay tax on the interest. You can put up to £20,000 into ISAs each tax year, which runs from April to April.
Basic-rate taxpayers can earn up to £1,000 per year tax-free, higher rate taxpayers can earn £500 per year tax-free and top rate taxpayers cannot earn anything.
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What types of ISAs are there?
There are four types of ISA:
Cash ISA – where your money is held in cash. Stocks and shares ISA – where your money is invested in equities, bonds and more, and you get a return. Innovative finance ISA – a rarer type of ISA which includes peer-to-peer loans and less liquid investments Lifetime ISA – an ISA in which you can hold cash and stocks and shares combined. You can use it to buy your first home or save for later life and you can put in up to £4,000 each year, until you’re 50. The Government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year, though there are further rules about this.If you are a basic rate taxpayer and have savings of £20,000 earning 5 per cent or more you will likely pay tax.
Would I still be better off with a normal savings account even though I pay tax?
– 1.25 if you’re a basic-rate taxpayer– 1.66 if you’re higher-rate taxpayer– 1.82 if you’re a top-rate taxpayer
At the moment, ISA accounts pay similar to or in some cases more than normal savings accounts.
The best easy access savings account that is not an ISA is with Coventry Building Society with a rate of 4.85 per cent. However, there is a maximum of four withdrawals a year.
Is a stocks and shares ISA better than a cash ISA?
General wisdom states that stocks and shares ISAs will often outperform cash over the long term.
But he also points out that the returns on shares can fluctuate a lot, whereas with cash, returns are guaranteed.
If you’re unsure, it may be worth speaking to a financial adviser, who can give you specific advice.
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