Important information - investment values (and income from investments) can go down as well as up, so you may get back less than you invest.
The government has lowered the cash ISA allowance to £12,000 for under 65s. The new rules will take effect from next April and are designed to get Britain investing in the stock market instead.
The change has been described by critics as a “sucker punch” for savers. But what does the data tell us?
The new rules
A cash ISA is a savings account where any interest you earn is free from income tax. You can currently contribute up to £20,000 each tax year.
The government thinks people are stashing too much of their wealth in cash, however. So, from 6 April 2027, the annual cash ISA allowance for under 65s will fall to £12,000. The limit for older savers will remain at £20,000.
Some extra rules have been announced to close any loopholes. For example, interest earned on uninvested cash in a stocks and shares ISA will be taxed at 22%.
The overall ISA limit remains set at £20,000, however, and you will still be allowed to hold money market funds in an investment ISA - assuming they don’t represent the entirety of your portfolio. It will still be possible to hold plenty of low-risk, cash-like assets, therefore.
However, Fidelity analysis shows that blending cash and investments can help savers build long-term resilience and stay ahead of inflation.
Save or invest?
Cash has a role in everybody’s portfolio. Your balance won’t go down until you start spending, meaning it’s great for regular outgoings and emergency purchases, and acts as an important buffer against market volatility. When it comes to growing your wealth, however, it’s a different story.
We have rewound to 6 April 2017, the day the annual ISA limit was raised from £15,240 to £20,000 - and exactly a decade before the rules are due to change again. We have compared how your savings would have performed since then in a cash ISA, a stocks and shares ISA, and a combination of the two.
Fidelity analysis suggests that someone who put £20,000 in an average savings account on 6 April 2017 and left it untouched would now have around £22,000. UK interest rates were under 1% between 2017 and mid-2022, meaning returns on cash savings were very poor in this period, but they have picked up since the pandemic.
The stock market could have generated far stronger returns. £20,000 invested in a global tracker fund, such as the Fidelity Index World, in April 2017 would now be worth roughly £57,500 - or £55,700, once platform fees are accounted for. Please note that past performance is not a reliable indicator of future returns.
Investing would certainly have been stressful at points. As you can see in the graph above, the value of global stocks fell sharply in 2020 and in 2025. Over the longer term, however, the direction has been upwards.
A blended approach
A blended approach would have delivered a less bumpy ride with a decent level of growth.
If you had put £12,000 in cash in April 2017 and your remaining ISA allowance in global shares, you would now have roughly £36,150. You would have experienced less volatility than a pure equity investor but would still have comfortably beaten inflation.
Real returns
Inflation is a key concern. Cash is often viewed as a safe haven, as the face value - or ‘nominal’ value - of your cash savings will not drop until you start spending. However, what you can buy with those savings could fall substantially. This is due to inflation, the process of prices rising over time.
If you had kept your savings entirely in cash since April 2017, you could have lost over £4,000 in real terms.
Role of cash
Cash and investments both play important - and different - roles - in your finances. Cash is a stable home for your money, whereas investments can fall in value. The compensation for taking that risk, however, is the potential for significantly higher returns over the long-term, and the chance to stay ahead of inflation.
This is a key consideration when making ISA decisions - and something to remember in the aftermath of the latest government changes.
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- Read: 4 income funds for your ISA
- Read: 4 growth funds for your ISA
- Read: What can we expect in the Autumn Budget?
|
(%) |
2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 | 2025-2026 |
|---|---|---|---|---|---|
| Fidelity Index World | -2.3 | 13.3 | 21.9 | 6.3 | 25.5 |
| Cash (Morningstar UK £2500+) | 0.2 | 1.2 | 2.6 | 2.5 | 1.7 |
Past performance is not a reliable indicator of future returns
Source: Morningstar, total returns in GBP terms from 30.6.21 to 30.6.26. Excludes initial charge.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Before investing into a fund, please read the relevant key information document which contains important information about the fund. Eligibility to invest in a ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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