Savers love their Cash ISAs. They’ve stashed more than £300billion in them, with all interest free of tax for life. Reeves touches them at her peril.
Savings experts are furious. Anna Bowes at The Private Office slammed the proposal as “outrageous”, saying many ISA savers don’t want to take the risk of investing in a Stocks and Shares ISA.
That may not stop Reeves. She’s in a corner and thinks attacking Cash ISAs may help her get out of it. Yet it’s a risky move.
Older savers often shun shares altogether. They rely on cash savings to top up their state pension and cover essential bills like food and energy.
They can’t afford to take a punt on volatile shares.
If you’re in your 70s or 80s when the stock market crashes, it can be a disaster. Yes, share prices historically recover – but it may take years.
That’s no good if you’ve got bills to pay today.
If you’re worried, there’s a simple response. Max out this year’s £20,000 Cash ISA allowance before the Spring Statement on March 26.
Or as much of it as you can. Just in case Reeves does launch a surprise tax attack.
She’s less likely to target money that’s already been tucked away. But more likely to cut future ISA allowances.
After that, you need to review where your money is. Because the Cash ISA may not be right for you.
City managers say shifting billions from cash to UK shares would boost the economy. Of course they do. They’d earn millions as cash flowed into their funds.
Yet they have one argument in their favour. Over time, a Stocks and Shares ISA will work your money far harder than a Cash ISA.
James Norton, head of retirement & investments at Vanguard Europe, says everyone should keep some rainy-day money in cash, but for long-term savings, bank accounts cannot compete.
Vanguard figures show that £10,000 invested in a global mix of shares via the FTSE All World Index in 1998 would have grown to £59,825 by the end of 2024.
In the average savings account, it would be worth just £18,695 – a third of that sum.
It’s the same story over the last decade.
Moneyfacts data shows the average Stocks and Shares ISA returned 9.64% a year over the last 10 years, compared to just 1.21% for Cash ISAs.
A Stocks and Shares ISA would have turned £10,000 into £25,101, with all dividends reinvested. Cash would have lifted it to just £11,278.
Thanks to the wonders of compound interest, the longer you invest in shares, the better.
This is not a green light for Reeves to slash the Cash ISA. Savers should be free to choose where they put their money. It’s a personal decision that involves balancing risks against rewards.
Also, there’s no guarantee that Cash ISA investors will buy UK shares. In fact, they’re more likely to invest in the booming US stock market than the FTSE.
While savers may resist being compelled to buy stocks, many should still consider making the move themselves.
Especially younger investors.
A Stocks and Shares ISA has a better track record of building long-term wealth than a Cash ISA. Provided you can withstand the short-term volatility.
This should be up to you though. Not Rachel Reeves.
