It’s a controversial move so what’s the Chancellor’s aim? To push more savers into Stocks and Shares ISAs instead.
Investment managers like Fidelity and Schroders argue this would inject much-needed capital into the UK economy.
Today, £360billion sits in Cash ISAs. If a good chunk of that flowed into FTSE shares instead, it could fuel UK business expansion.
Savers hate the idea. Many prefer the certainty of cash, particularly pensioners. And I get that.
While nobody likes being coerced, Reeves has a point. History shows the stock market delivers superior returns to cash.
The Barclays Equity Gilt Study, which tracks data all the way back to 1899, shows that over any 10-year period, UK stocks have beaten cash nine times out of 10.
It’s the same story since ISAs were launched in 1999, according to figures from AJ Bell.
A £10,000 Cash ISA in 1999 would be worth £20,160 today, given average rates. That’s only just protected its real value against the ravages of inflation.
By contrast, a global Stocks and Shares ISA would have increased £10k to £44,610, while the booming US stock market would have returned a stunning £59,640.
Even the UK market, which has trailed Wall Street lately, would have tripled that £10k sum to £33,300, outpacing cash.
“Cash ISA savers pay a high price for playing it too safe,” says AJ Bell’s Laura Suter.
So Reeves is right (that’s not something I say often). The UK could benefit from fostering an equity investing culture like the US.
The Financial Conduct Authority (FCA) warned in 2021 that 8.4million people held too much cash, missing out on better returns. That’s since jumped to 11.8million.
Despite all that, Reeves meddles with Cash ISAs at her peril.
They remain incredibly popular, with 14.5million savers relying on them. In contrast, just four million hold a Stocks and Shares ISA, while 3.5million have both.
Everyone needs some cash. Both for emergencies and to protect against stock market downturns. Pensioners, in particular, value its security. Unlike stocks, cash won’t lose value overnight.
And with Donald Trump’s tariff war plunging US shares into chaos, some will argue that now isn’t the time to shift into equities.
Even Suter admits Cash ISAs are in a “sweet spot” with top accounts paying 5%. But those rates will fall once interest rates drop.
Reeves may hope to nudge people towards investing, but there’s a fine line between encouragement and coercion.
If she oversteps, she risks alienating millions of voters who love their Cash ISAs.
Ultimately, savers need to think carefully about where their money is best placed. A mix of cash savings and stock market investments is often the wisest approach.
While the numbers favour equities over time, having money in cash is essential for short-term needs and peace of mind.
Reeves says she wants to strike the right balance between the two. But that should be left to individuals, not politicians. If some Cash ISA savers listen and shift long-term savings into shares, some good may come of this.
