New figures from the Bank of England reveal that savers deposited £3.1 billion into Cash ISAs in May, as fears mount over upcoming rule changes by the Labour Party government. The annual Cash ISA allowance for adults aged 18 to 64 is set to be slashed from £20,000 to £12,000 from April 6, 2027, prompting a rush to maximise tax-free savings while still possible.
Record Inflows Amid Allowance Cut Fears
The May inflow follows a £12 billion boost in April, highlighting the urgency among savers. Sarah Coles, head of personal finance at AJ Bell, commented: "The dash for Cash ISAs in May, on the back of a £12 billion boost in April, lays bare the unintended consequences of cutting the Cash ISA allowance." She added: "This tax year is the last chance for under-65s to pay in up to £20,000 before their allowance is cut to £12,000 from April 6, 2027. It means they're filling their boots while they can. For a policy that was intended to encourage people to move away from cash and towards investing, this is hardly the result the Government would have been hoping for."
Government Policy Backfires
The policy, designed to shift savers from cash to investments, appears to have backfired as savers flock to Cash ISAs. Clare Stinton, senior personal finance analyst at Hargreaves Lansdown, noted: "People are choosing to house their hard-earned money in Cash ISAs and it's easy to understand why." She explained that next April will bring a host of changes, including a reduced Cash ISA allowance for those aged 18-64, higher tax rates on savings interest outside ISAs and pensions, and a 22% tax on interest from cash held in Stocks & Shares ISAs from 2027. "It's use it or lose it and the countdown is on," she said.
Impact on Households
Millions of UK households will have less room to shelter savings from the taxman once the new rules take effect. The allowance cut from £20,000 to £12,000 reduces the tax-free savings capacity for under-65s by 40%. The rush to deposit funds in May indicates savers are acting quickly to take advantage of the current limits before they are reduced.
