Latest news with #cashIsas
Telegraph
3 days ago
- Business
- Telegraph
Don't be duped by Reeves's Isa reprieve – get your money out of cash now
Banks and building societies are thrilled that Rachel Reeves has temporarily shelved plans to cut cash Isa allowances. But that doesn't mean you should top up cash holdings. Whatever eventually happens with allowances, holding too much cash is a real and big risk called 'opportunity cost'. Forget the politics here, and whether Reeves's goal – getting more money into stocks and shares Isas to boost investment and returns – would work. This is all about your needs and whether your finances will meet them. Tax allowances aren't solely why Britons hold nearly £300bn in cash Isas. It's because cash feels safe. It doesn't swing short-term like stocks and sometimes gilts. But cash quietly hampers long-term returns, risking a brutal, underfunded retirement poverty. Few investors fully fathom this. Here's how you should balance your portfolio. Holding some cash, maybe six to 12 months' expenses, is sensible as an emergency fund. It can help you invest better by avoiding forced securities sales at inopportune times. Or, if you have a home purchase or other major expense in the next few years, setting cash aside is wise. But if that's not the case? Cap your cash. Numerous studies show that asset allocation – your mix of stocks, bonds, cash and other securities – determines most of your long-term return. Not market timing. Not stock picking. Not perceptions of 'safety'. Asset allocation dominates. Your goals, needs and time horizon should largely determine your allocation. The longer your time horizon and the more growth you need, the more you need long-term in high-returning stocks. Maybe those who need income or who can't stomach volatility hold some bonds. But cash? Keep it minimal. Why? Minimal returns. Over the past century the FTSE All-Share index annualised 10.1pc through to 2024. Gold? 7.7pc. Ten-year gilts? 5.2pc. Cash? Short-term government bills (a cash proxy) returned the lowest, just 4.7pc a year since 1924. It's been even lower since 2000 at 2.4pc. Meanwhile, over the past century, inflation has averaged 4.3pc, eroding your returns. Since 2000 inflation has averaged 2.5pc, devouring cash returns entirely. If your goals require any real returns, cash is unlikely to deliver it. So, how much cash do you hold? What is your asset allocation? Too few investors know. Start thinking about asset class. Total up what you hold in all your accounts, any current account, savings account, pensions or Isa. Stocks, tracker funds, all of it. If you own funds that blend stocks and bonds, calculate it this way: if you have £100,000 in a 60pc stock, 40pc bond fund, chalk £60,000 to stocks, £40,000 to bonds. Then subtract funds earmarked for known, near-term expenses or emergencies. Once you have that total, divide each category – stocks, bonds, cash and other – by the total. The resulting percentages are your allocation. Now what share is your cash? Consciously or not, your allocation reveals an implied forecast. If you hold piles of cash, you imply history's lowest-returning asset class is more future-fit than historically higher-returning ones, like stocks. In other words, if you're holding lots of cash you are implicitly being mega-bearish. That is a huge risk, maybe the biggest one you can take if you need growth to finance your goals. If it is intentional, you must see big negatives others don't (that markets haven't priced in) to justify it. Many say they hold cash 'in case' stocks tumble. But at what cost? The best buy-the-dip opportunities, like early April 2022 or Covid's 2020 crash, come with huge fear. Precious few seize them. Did you? Your 'dry powder' turns into a long-term drag. The truth is, big cash holdings feel good but they hurt overall returns. Since 2000 (a cyclical stock market peak), £1m invested in 70pc London-listed stocks and 30pc long-term gilts grew by £2m through 2024. Stash even 20pc in cash, and you wound up with £233,351 less. And that is despite a big, multi-year bear market starting that stretch. If you had invested globally, that gap would be far wider. You may say, 'but that is over 25 years!'. Surely shorter horizons bring many more periods when stocks sink, right? But consider this. Since 1924, using monthly returns, the FTSE All-Share rose in 75pc of rolling 12-month periods. Not bad! It climbed in 91pc of rolling five-year periods – even better. No rolling periods greater than 10 years were negative. Not one. Moreover, while even rising deposit rates can't make cash beat inflation, stocks can and do. UK stocks averaged 73pc over those five-year rolling periods and 215pc over the rolling 10-year stretches. Similar patterns hold for global stocks. Don't get duped by cash's supposed safety. Think total holdings and asset allocation – and cut your cash to the core.
Yahoo
11-07-2025
- Business
- Yahoo
Reeves delays cash Isa reform after backlash
Rachel Reeves is poised to delay controversial plans to reform cash Isas following a fierce backlash from some of Britain's biggest lenders. The Chancellor had been expected to use her Mansion House speech on July 15 to announce a reduction in the amount of money that savers could put into the product. However, she has now rowed back on the plans in favour of encouraging households to put more of their savings into stocks and shares. While the reforms have not been dropped altogether, Whitehall officials are split on how to progress reforms that could see the amount savers can put into a cash Isa tax-free fall from £20,000 to as low as £5,000. Ms Reeves is looking to consult with the industry more broadly about the changes as she responds to a wave of recent opposition from building societies and consumer champions. The likes of Yorkshire, Coventry and Skipton building societies all opposed the reforms, which they said could restrict their ability to raise the funds needed to provide loans to homeowners. Nearly a third of people in Britain have a cash Isa, with around £300bn in savings used by building societies to lend to homeowners. The UK has 42 building societies, serving 26m customers. Chris Irwin, Yorkshire Building Society's head of savings, said earlier this week that 'reducing Isa deposits could make mortgages more expensive and less available'. Mr Irwin said: 'Cash Isas make up 39pc of all building societies' retail savings balances. This provides a vital source of funding to allow us to offer more mortgages to those that need them.' That view was echoed by Jeremy Cox, head of strategy at Coventry Building Society, who added that Ms Reeves's plans could have a wider impact on Labour's ambition to build 1.5m homes by the end of Parliament. He said: 'We want to support the Government's ambition to build 1.5m new homes. Cutting Isa limits could make that more difficult and have a significant impact on economic activity.' However, City stockbrokers supported the plans as their investment platforms would have been bolstered by more money being pumped into stocks and shares Isas. A Treasury spokesman said: 'Our ambition is to ensure people's hard-earned savings are delivering the best returns and driving more investment into the UK economy.' Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Telegraph
11-07-2025
- Business
- Telegraph
Reeves to delay cash Isa reform after backlash
Rachel Reeves is poised to delay controversial plans to reform cash Isas following a fierce backlash from some of Britain's biggest lenders. The Chancellor had been expected to use her Mansion House speech on July 15 to announce a reduction in the amount of money that savers could put into the product. However, she has now rowed back on the plans in favour of encouraging households to put more of their savings into stocks and shares. While the reforms have not been dropped altogether, Whitehall officials are split on how to progress reforms that could see the amount savers can put into a cash Isa tax-free fall from £20,000 to as low as £5,000. Ms Reeves is looking to consult with the industry more broadly about the changes as she responds to a wave of recent opposition from building societies and consumer champions. The likes of Yorkshire, Coventry and Skipton building societies all opposed the reforms, which they said could restrict their ability to raise the funds needed to provide loans to homeowners. Nearly a third of people in Britain have a cash Isa, with around £300bn in savings used by building societies to lend to homeowners. The UK has 42 building societies, serving 26m customers. Chris Irwin, Yorkshire Building Society's head of savings, said earlier this week that 'reducing Isa deposits could make mortgages more expensive and less available'. Mr Irwin said: 'Cash Isas make up 39pc of all building societies' retail savings balances. This provides a vital source of funding to allow us to offer more mortgages to those that need them.' That view was echoed by Jeremy Cox, head of strategy at Coventry Building Society, who added that Ms Reeves's plans could have a wider impact on Labour's ambition to build 1.5m homes by the end of Parliament. He said: 'We want to support the Government's ambition to build 1.5m new homes. Cutting Isa limits could make that more difficult and have a significant impact on economic activity.' However, City stockbrokers supported the plans as their investment platforms would have been bolstered by more money being pumped into stocks and shares Isas. A Treasury spokesman said: 'Our ambition is to ensure people's hard-earned savings are delivering the best returns and driving more investment into the UK economy.'
Daily Mail
10-07-2025
- Business
- Daily Mail
Tax-free cash pots already held in Isas not at risk of any retrospective changes, government says
The Government has ruled out retrospective changes to cash Isas in any scenario, This is Money understands. It means money already stashed in a cash Isa will not be subject to any rule changes set to be announced by Rachel Reeves next Tuesday. It is widely expected the Chancellor will use her Mansion House speech to announce a cut to the cash Isa allowance. Savers can currently save up to £20,000 a year into cash Isas with all the interest earned on savings being free from tax. But it is thought that could be cut to £5,000 or £4,000 a year. This would see the amount that can be put into a cash Isa slashed to less than a fifth of its current level and mean many savers will pay more tax on the interest they earn on their cash as a result. Those who use a stocks and shares Isa to invest will still be allowed to contribute up to £20,000 in each tax year. The Government is on a drive to get more savers investing so they can benefit from the long-term financial security and returns of investing and to boost the British economy. It is keeping all aspects of savings policy under review as Chancellor Rachel reeves scrambles to fill a black hole in the country's balance books. While it was never rumoured that any retrospective changes were on the cards, many This is Money readers have written in worried about the Chancellor coming after pots already salted away in the tax-free wrapper. Any changes to cash Isas are unlikely to come in to force until April 2026. There has been widespread backlash to the alleged changes to the cash Isa allowance from savers and saving industry figures alike. The Building Societies Association has penned a letter to the Government warning restrictions imposed on cash Isas could have unintended consequences on the housing market. Namely, reducing funding for lending, driving up mortgage prices and triggering a housing market downturn. 'This,' it says, 'would undermine efforts to stimulate economic growth, including the Government's commitment to delivering 1.5million new homes'. A Treasury spokesman said: 'We recognise the important role that cash savings play in helping households build a financial buffer for a rainy day. 'Our ambition remains to ensure people's hard-earned savings are delivering the best returns and driving more investment into the UK economy.'
Telegraph
01-07-2025
- Business
- Telegraph
Rachel Reeves's cash Isa raid is a blatant attack on pensioners
What are you doing with your cash savings? Let me know: I probably don't need to tell Telegraph readers not to trust Rachel Reeves. Perhaps it's no surprise – given her history of, ahem, embellishing her CV – that I don't think the Chancellor is being entirely honest about her motives around Isas. It is thought Reeves will use this month's Mansion House speech to announce a dramatic cut to the limits on cash Isas. Handily, this would not break her promise not to raise taxes on 'working people', and would land largely on the shoulders of pensioners. Currently, you can save £20,000 a year into a single Isa, or across several types, such as investment Isas or the lifetime Isa. The Chancellor previously signalled the overall limit would not change, but is now understood to be preparing to slash the amount you can put solely into cash accounts to £5,000 or even £4,000 a year. This will be justified by saying that savers need to be encouraged to invest in British companies. This, the Government would argue, generates higher returns for investors than boring old savings accounts – and gives London-listed companies a much-needed boost. But the truth is that if you're an 85-year-old saver, you probably don't want or need to invest your cash – and Reeves, of course, knows this. Indeed, it would be an incredibly risky move. If Donald Trump's latest surprise move sends your portfolio down 20pc, you might not have very much time to recover those losses. Instead, millions of cash Isa savers will simply be forced to put their money into traditional bank and savings accounts. Outside of the tax-free Isa wrapper, the interest on that cash will attract income tax just like any other earnings. The 'savings allowance' does protect some interest from income tax, but it is set pitifully low. While basic-rate payers can earn £1,000 a year tax-free, higher-rate payers only get £500 – while those earning more than £125,000 a year get... zilch. These limits have been frozen for nearly a decade, while wages and interest rates have soared. By stealth, our tax bills, whether paid as a salary or savings interest, are rapidly rising. Say the cash Isa limit does drop to £4,000 a year from April 2026. If you put the full amount in and add the remaining £16,000 into a savings account outside of an Isa paying, for example, 4.6pc, it would generate a tax bill of nearly £100. And that's not taking into account any money you already have saved. Replicate that across millions of people across Britain, and HMRC – or rather the Chancellor – will be raking it in. In January, Shawbrook Bank warned an extra 800,000 accounts would generate more than £1,000 of interest this year, triggering a tax bill. There were already more than six million accounts big enough to pass this threshold. But this analysis does not take into account further reforms to Isa limits or what evasive action savers are already taking. Some £14bn flooded into cash Isas in April, a record for a single month, as families sought to shelter their money while they still can. My advice to you is to do the same (you can find today's best cash Isa rates here). Savings passed between spouses are tax-free, and children have a very generous £9,000 Isa allowance of their own. Remember too that you can hold cash in a stocks and shares Isa, though the rates are poor, or by-proxy via 'money market' funds that invest in low-risk assets that produce a similar return to cash.
