Banks and building societies are likely to start a “mini rate war” as they compete to attract customers ahead of an expected cut to the cash ISA allowance, savings experts have predicted.
Savers can currently put up to £20,000 per year in ISAs – cash or stocks and shares – to protect the returns and interest from being taxed, but Chancellor Rachel Reeves is expected to announce a cut to the allowance on the cash version in Wednesday’s Budget.
Personal finance experts expect any cut to begin from April – when the new tax year starts – and that savers could rush to load their cash ISAs ahead of that date.
Savings market experts predict that banks and building societies may move to offer customers higher rates in order to attract the extra business.
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This means that savers may well have an opportunity to get inflation-busting returns in the coming months.
Andrew Hagger, director of personal finance website Moneycomms told The i Paper: “I think we could see a mini rate war breaking out in the cash ISA market as providers look to take advantage of the potential wave of new money with savers looking to make the most of the existing tax free limit while they still can.”
Adam Thrower, a savings expert and head of savings at Charity Bank, told The i Paper: “Historically whenever there’s a hint of change [to ISA allowances], we tend to see a surge of customers trying to use their remaining allowance before the deadline. For banks, this is a window to attract new customers and secure balances ahead of April, so some providers may sharpen rates or launch short-term headline products to stand out.”
Sarah Coles, head of personal finance at Hargreaves Lansdown said: “We can expect hot competition in the cash ISA market if the reported cut to £12,000 comes to fruition.
“The level of competition will depend on the timing of any possible cut, so if it’s scheduled for April 2026 there’s likely to be a fierce battle to win cash ISA customers. If it doesn’t come in until April 2027, there will still be competition, but it might be less frenzied.”
Jonathan Wilson, senior savings manager at Coventry Building Society, said: “If there is a change announced by the Chancellor tomorrow, it’s likely we’ll still see attractive interest rates for a while, especially when we get into ISA season in February and March next year.”
Savers have a £20,000 limit on money that can be put in cash ISAs every tax year, which runs from April to April, and so the months before are often termed ‘ISA season’, because many savers act to use up any leftover allowances they have remaining.
Reeves likely to cut allowance to £12k
Reeves is expected to cut the allowance on cash accounts to £12,000 – with April 2026 expected to be the earliest that any cut will begin – in order to encourage savers to invest in stocks and shares ISAs instead.
The Treasury is hoping this will help boost the economy, which has been flatlining and flirting with recession since Labour came to government.
Stimulating economic growth was a key pledge of the government, which was hoping it would help fund its spending plans, as well as put more money in people’s pockets – another key pledge.
Savers could consider locking cash away ASAP
James Blower, founder of comparison website The Savings Guru, said that he expected a cut to ISA allowances to kick in from early April 2026 but that savers should still act to put their money into cash ISAs sooner than this, as rates may end up falling if the Bank of England were to cut interest rates in December.
Savings rates tend to fall if the Bank of England cuts interest rates, and Blower said one option for savers looking to protect themselves be to consider putting their money into a fixed ISA now.
Fixed rate cash ISAs force customers to lock their money away for a set period of time – and they often can’t access the money early without paying a penalty – but in return savers are guaranteed to receive a set interest rate for that period. Rates on easy-access cash ISAs, the other option, can fluctuate at short notice.
Previous rumours of cuts to cash ISA allowances have sparked surges in savers depositing money.
Ahead of the Spring Statement on 26 March this year, there were rumours that Reeves could cut the cash ISA allowance.
In that month alone, £6.8bn was deposited in cash ISAs, which was a 104 per cent increase from the £3.3bn deposited during the same month in 2024.
Savings not in ISAs can be taxed
While all interest earned from money in ISAs is tax-free, interest earned from general savings accounts can be taxed.
Interest on savings is taxed at people’s normal interest rate once they earn over an allowance, which is £1,000 for basic rate taxpayers earning between £12,570 and £50,270.
Higher earners, earning between £50,270 and £125,140 have a smaller allowance of £500 that they can earn without paying tax and those earning over £125,140 have no allowance.
The best cash ISA rate on the market at the moment is an easy-access account from Trading 212, which pays 4.56 per cent, including a 0.71 per cent 12 month fixed bonus.
Someone depositing £20,000 in this account would gain £912 in interest across a full year.
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Fixed rate ISAs generally pay lower rates, but accounts offering above 4 per cent are available from several providers.
People can stack ISA allowances by saving the maximum of £20,000 each year, and so some people can have hundreds of thousands of pounds in them.
There has been no suggestion that Reeves will force savers with money already in cash ISAs to move their money into other accounts, with any reduction likely to be in place going forwards.
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