One year until cash ISA allowance cut – savers could miss out on tens of thousands by sticking with cash

With the cash ISA allowance set to fall to £12,000 from April 2027, new analysis from St. James’s Place highlights how shifting the remaining allowance into stocks and shares ISAs could significantly boost long-term returns compared to holding cash alone.

With the Chancellor’s planned changes to the cash ISA allowance now less than year away, many long-term cash savers who have previously not considered investing will soon be deciding how to manage the remaining £8,000 of their annual ISA allowance. 

From 6 April 2027, the amount savers under age 65 can place into a cash ISA each year is expected to fall from £20,000 to £12,000, while the overall ISA allowance will remain unchanged (and stay frozen until April 2031). This means many of those wishing to maximise their tax-free savings will need to consider investing the remaining portion in a stocks and shares ISA, an Innovative Finance ISA or holding it outside the ISA wrapper altogether, where it will be subject to normal tax rules.

New analysis¹ from St. James’s Place (SJP) shows how investing part of the ISA allowance could deliver significantly stronger long-term returns than keeping the full amount in cash. For example, someone who invested £8,000 in a global equities stocks and shares ISA 10 years ago, while keeping the remaining £12,000 in a cash ISA, could now have a combined pot worth around £41,100. By comparison, placing the full £20,000 into a cash ISA tracking the Bank of England base rate could have resulted in a pot worth around £24,000 – £17,100 less.

The analysis highlights how the potential for benefits could be even greater for those who choose to invest more of their allowance. For example, someone who invested the full £20,000 in a global equities stocks and shares ISA over the same period could now have a pot worth around £66,700 – £42,700 higher than if the money had been kept entirely in a cash ISA, and £25,600 higher than someone who chose to take the combined approach with £12,000 in a cash ISA and £8,000 in stocks and shares. 

SJP’s analysis also illustrates the benefit of investing when it comes to beating inflation. Indeed, since 2016, £20,000 growing in line with the rise in the CPI would now be worth around £28,200– meaning those who had placed their full £20,000 in a cash ISA could have a pot short of inflation by £4,200. 

By contrast, those taking a combined approach could have seen their pot comfortably outstrip inflation, by £12,900, and those who invested the full £20,000 in a stocks and shares ISA may be in an even better position with a pot beating inflation by £38,500. 

Claire Trott, Head of Advice at St. James’s Place says: “Cash ISAs remain an important part of many people’s savings strategy, particularly for short-term needs. But inflation and relatively modest interest rates mean the real value of savings can be eroded over time. Investing alongside cash can provide greater long-term growth potential and help protect that value.

“With the cash ISA allowance for many set to fall to £12,000, this presents a clear opportunity for long term savers to consider investing for the first time. Our analysis shows that investing that £8,000 could deliver significantly stronger long-term returns than keeping it in cash – particularly as any amount held outside an ISA may also be subject to tax.

“While there is nearly a year to go before the changes take effect many, savers don’t have to wait until 2027.  Starting earlier gives investments more time to grow, and even a year can make a meaningful difference over the long term.”