Will Reeves Slash Cash ISAs?

Dominic Thomas
Feb 2025 • 2 min read

Will Reeves Slash Cash ISAs?

Hopefully you will know that I am a fan of having cash, we all need it for ‘liquidity’. In plain English – that means having money easily available without needing to sell anything. This is usually best for your emergency fund. This is a number (sum) that helps you to sleep well at night and quite frankly depends on your life stage. A measure of 3, 6 or 12 months of normal spending is helpful plus planned spending projects (not normal spending) over the next three years.

Keeping more than this in cash will likely erode the value of your spending power. You are likely to be going backwards. You might say “backwards, but at least with certainty – compared to investments” well, that is true in the short term but in the long term, whilst nothing is certain, we have yet to see a period when cash beats shares over 10 years or longer.

So, the news that the Chancellor (Rachel Reeves) is contemplating either scrapping or reducing the Cash ISA allowance from £20,000 to £4,000 may be a surprise for some of you. It’s because in theory holding cash doesn’t really serve anyone very well, least of all the economy, but investing in businesses … well that helps create wealth. That’s why she is considering it.

It would seem that this will only start from the new tax year (if at all) and nobody is expecting her to tell us that you can only hold £4,000 in total in Cash ISAs – which would be highly unlikely. Whilst you may find this an unwelcome change, it’s worth remembering that Cash ISAs always had a lower allowance until the 2015/16 tax year when the allowance became £15,240.

As we are still in the 2024/25 tax year data isn’t up to date, honestly in this digital age, I don’t understand why HMRC are so behind. Anyway, interest rates obviously improved over the last couple of years and more people used Cash ISAs, 63% of contributions to ISAs in 2021/22 were into Cash ISAs. People forget the impact of inflation which is still not within range, and Cash ISAs continue to provide a negative return. Quilter did some research and found that £10,000 into a Cash ISA in December 2012 would now be worth £11,955 but when adjusted for inflation that’s really £7,918. In contrast, the same amount invested into a global shares index fund would be worth £33,526 (£22,221 after inflation).

You may have seen my inflation diagram about a first-class stamp, something we can all relate to and perhaps why there are fewer Christmas and Birthday cards being sent.

1985: 17p
1995: 25p
2005: 30p
2015: 63p
2025: £1.65

Your money has to keep pace with inflation. 10 years races by, but holding your hard-earned money in cash that provides a negative return is only good for short-term projects and emergency funds.

The current ISA allowance for 2024/25 is £20,000. The Junior ISA allowance (for those under 18) is £9,000.

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Will Reeves Slash Cash ISAs?Jemima Thomas2025-02-27T11:05:24+00:00

Taxing your savings

Dominic Thomas
Feb 2023 • 10 min read

Prize – Back to winning ways? Or simply more tax on your savings?

Despite the cold weather and general sense of grey, there are some silver linings. On 24^th January 2023 NS&I increased the interest rates on various accounts.

If you are one of the 870,000 or so people who hold NS&I’s Direct Saver, Income Bonds or Direct Cash ISA, you will now get a little more interest. The interest rate paid on Direct Saver and Income Bonds will increase from 2.30% to 2.60%, whilst the interest rate on Direct ISA will increase from 1.75% tax-free to 2.15% tax-free.

Those of you who like Premium Bonds and remain optimistic of jackpot winnings (less likely than being struck by lightning), the prize fund rate will also increase from 3.00% to 3.15%, effective from the February 2023 prize draw. This follows the rate increasing from 2.20% to 3.00% on New Year’s Day.

NS&I has also increased the interest rate that it pays on its Junior Cash ISA from 2.70% tax-free to 3.40% tax-free, meaning that 80,000 under 18s will benefit from extra interest on their savings, though why anyone would want to hold cash for 18 years is beyond me …

Media spin means that we can confidently say that “today’s changes mean that Income Bonds are now paying their highest rate of interest since 2008” which is of course since the infamous credit crunch. The prize fund on premium bonds is also at its highest level since the great crunch.

The odds of each £1 Bond winning any prize will remain fixed at 24,000 to 1, with the changes meaning that the number of prizes worth £50 to £100,000 will increase from next month’s draw (February 2023). In short, if you have at least £24,000 in Premium Bonds you would be unlucky not to win at least £25 (the smallest but most common prize, paid out on over 2.6m Premium Bonds).

There are an estimated 119 billion premium bonds in issuance. The £1m jackpot is paid out on two bonds every month. So there is roughly a 1 in 59 billion chance of winning the jackpot in any month. It will not surprise you that I don’t believe that reliance on such odds is a good strategy for your future, but I certainly would acknowledge that it’s a little bit of fun.

Current and new Premium Bonds prize fund rate and odds:

Current prize fund rate	Current odds	New prize fund rate (from February 2023)	Odds from February 2023 (no change)
3.00% tax-free	24,000 to 1	3.15% tax-free	24,000 to 1

Number and value of Premium Bonds prizes:

Value of prizes in January 2023	Number of prizes in January 2023	Value of prizes in February 2023 (estimated)	Number of prizes in February 2023 (estimated)
£1,000,000	2	£1,000,000	2
£100,000	56	£100,000	59
£50,000	111	£50,000	117
£25,000	224	£25,000	236
£10,000	559	£10,000	590
£5,000	1,116	£5,000	1,177
£1,000	11,968	£1,000	12,573
£500	35,904	£500	37,719
£100	1,159,432	£100	1,280,509
£50	1,159,432	£50	1,280,509
£25	2,617,902	£25	2,376,161
Total £299,202,350	Total 4,986,706	Total £314,347,875	Total 4,989,652

Variable rate savings products:

Product	Previous interest rate	Interest rate from today (24 January 2023)
Direct Saver	2.30% gross/AER	2.60% gross/AER
Income Bonds	2.30% gross/2.32% AER	2.60% gross/2.63% AER
Direct ISA	1.75% tax-free/AER	2.15% tax-free/AER
Junior ISA	2.70% tax-free/AER	3.40% tax-free/AER

Can you get better rates elsewhere? Of course you can! Remember that non-taxpayers and basic rate taxpayers have the personal savings allowance in 2022/23 of £1,000 of tax-free interest. At an interest rate of say 3%, you would need £33,333 on deposit before tax is triggered. Higher rate taxpayers only have £500 of the allowance, so at an interest rate of 3%, you would only need £16,660 on deposit before tax is triggered. A year ago, you would have been hard pressed to be taxed on £100,000 of savings when interest rates were under 1%.

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Taxing your savingsJemima Thomas2025-01-28T10:05:14+00:00

GOOD NEWS FOR CHILD TRUST FUNDS

TODAY’S BLOG

GOOD NEWS FOR CHILD TRUST FUNDS

Young people with a Child Trust Fund (CTFs) could see their savings automatically rolled into a new tax-free savings accounts at maturity under new government proposals. The first Child Trust Funds are due to mature in September this year and, under current arrangements, will be automatically cashed in once the account holder turns 18.

CTFs could instead be automatically rolled over into another account that continues to shelter the young saver’s cash from the taxman. Child Trust Funds were launched in 2005 as a way to encourage parents to start saving for their children. Children born between September 1, 2002 and 2 January 2, 2011 received between £250 or £500 to be invested on their behalf.

Parents, family and friends could continue to contribute to the account, with all gains tax-free. More than 6 million CTF accounts were opened and no money could be withdrawn until the child reached age 18. That means the first tranche of accounts will mature in September 2020. But CTFs were discontinued in 2011 and replaced with the Junior ISA (JISA).

For years, children with CTFs were left in limbo as savings providers stopped offering new products as JISAs took precedence. In 2015, the Government ruled that money held in CTFs could be transferred out to a JISA. For those who kept their money in a CTF, the money would automatically cash out once the accountholder turned 18. But many have considered this to be unfair. Junior ISAs are automatically rolled into adult Isa accounts when a child reaches 18, meaning they continue to enjoy their tax-free status. The Government’s latest move looks to be levelling up the playing field.

Note that tha current JISA limit (which is a tax year limit on contributions) is £4,368 for 2019/20.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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