Martin Lewis: Is the £20,000 cash ISA limit about to be killed off?

Neversurrender

I'm afraid this idea of being encouraged to invest in stocks and shares isa  instead of cash isa needs some serious looking at.

All well and good investing your savings into stocks and shares ISA if you are young  but if you're getting on a bit in your mid 60's, it's not like you want to lock your savings away for the required time invested, (5 years at least) and with no guarantee against making a loss!

Many people of my age count on their savings as a safety net to back up their existing SIPPS, and now this is going to mean those backup savings are invested too, with more risk!

And how this is going to help the UK economy grow I don't know, because no way am I investing in uk industries, and I am pretty sure I'm not on my own there.

Bernythedolt

Currently one can transfer funds from a S&S ISA to a Cash ISA - I've done that a few times myself.  Assuming that facility will remain:-  

If the Treasury introduces this annual £4k (let's say) cap on Cash ISA deposits and leaves (say) £16k potential for an S&S ISA, to encourage S&S investing, then careful planning could presumably work around this to still get the full £20k per annum into a Cash ISA from year two onwards...

Tax year 1:  Put £4k into a Cash ISA and £16k into S&S ISA. 
Tax year 2:  Put £4k into a Cash ISA, £16k into S&S ISA.... and transfer last tax year's £16k from the S&S ISA to a Cash ISA.
Tax year 3 and onwards:  As year 2, rinse & repeat.  

This way you are effectively saving the full £20k per annum into a Cash ISA, unless I've missed something?

Those naturally averse to S&S investment risk could find a lower risk fund and their exposure should never rise much above £16k using this process.  Timing it right, putting the £16k into a S&S ISA late in the tax year and transferring it back out early in the next, should minimise their exposure still further.  Ok, it's a faff, but could it offer a legitimate way to keep your Cash ISA topped up to max, like we enjoy today?   

If, on the other hand, the Treasury blocks the current right to transfer from an S&S ISA to a cash ISA, or imposes further restrictions, that will have much wider implications.  It would certainly discourage me from investing in S&S ISAs in the future, if I could no longer freely switch the funds back to a cash ISA at will.  As people age, the usual advice is to reduce risk by gradually transferring from S&S to Cash.  If the intention is to encourage S&S ISA investing, any restrictions in this area could well backfire.  

Disclaimer:  This is NOT to be taken as financial advice.  Please do your own research.  I will not be held responsible for any decisions you make. 

masonic

Bernythedolt said:

Currently one can transfer funds from a S&S ISA to a Cash ISA - I've done that a few times myself.  Assuming that facility will remain:-  

If the Treasury introduces this annual £4k (let's say) cap on Cash ISA deposits and leaves (say) £16k potential for an S&S ISA, to encourage S&S investing, then careful planning could presumably work around this to still get the full £20k per annum into a Cash ISA from year two onwards...

Tax year 1:  Put £4k into a Cash ISA and £16k into S&S ISA. 
Tax year 2:  Put £4k into a Cash ISA, £16k into S&S ISA.... and transfer last tax year's £16k from the S&S ISA to a Cash ISA.
Tax year 3 and onwards:  As year 2, rinse & repeat.  

This way you are effectively saving the full £20k per annum into a Cash ISA, unless I've missed something?

Those naturally averse to S&S investment risk could find a lower risk fund and their exposure should never rise much above £16k using this process.  Timing it right, putting the £16k into a S&S ISA late in the tax year and transferring it back out early in the next, should minimise their exposure still further.  Ok, it's a faff, but could it offer a legitimate way to keep your Cash ISA topped up to max, like we enjoy today?   

If, on the other hand, the Treasury blocks the current right to transfer from an S&S ISA to a cash ISA, or imposes further restrictions, that will have much wider implications.  It would certainly discourage me from investing in S&S ISAs in the future, if I could no longer freely switch the funds back to a cash ISA at will.  As people age, the usual advice is to reduce risk by gradually transferring from S&S to Cash.  If the intention is to encourage S&S ISA investing, any restrictions in this area could well backfire.  

Disclaimer:  This is NOT to be taken as financial advice.  Please do your own research.  I will not be held responsible for any decisions you make. 

Transfers from S&S ISAs to cash ISAs would need to be stopped, otherwise the restriction would be pointless as you suggest. It would not stop anyone from withdrawing £4k per tax year from their S&S ISA and putting it into a cash ISA, or withdrawing a larger sum to hold in a normal savings account at any time.

masonic

Suzycoll said:

masonic said:

Suzycoll said:

booneruk said:

Suzycoll said:

I have decided to start withdrawing half my savings from my  cash ISA & put it in a safe at my house ! Call me stupid but .... Thoughts ?

You'll be guaranteed to lose money effectively - inflation will erode the purchasing power of that safe-ensconced cash.

You'll also introduce the cash to theft/fire risk.

Yes I realise that . Sadly ( and I know it's stupid) I just don't trust any government with my cash 😔 

Governments control cash whether it is in an ISA or under your mattress. They can devalue it through their actions or inactions. This could be an argument for investing, as your fortunes can be disconnected from your country's own financial prospects.

I'm beginning to wonder what I missed not following Martin's blog. Was this the week where he fell down the rabbit hole?

Yes I appreciate that. I meant I don't trust governments to change thing. I don't think you missed anything. I have no gripe with Martin at all

The ISA legislation has been changed almost annually since the original Act was passed in 1998. So if anything can be relied upon, it is for the rules to be different in the future than they are today. It doesn't mean you shouldn't make best use of what is available now.

BadAnnie

I think one major point being missed here is why a lot of people use cash ISAs. Doing a, rather unscientific, poll amongst people I know that have cash isas. They use the Isa as a means of saving cash until they need it for something, this way they are not paying more tax than they need to. Needless to say most of these people are pensioners, many of whom don't have vast savings, but just too much to claim benefits so are trying to make as much use of their money as possible. They can't afford the, long term, stocks and shares volatility, as they are older and possibly have need of the cash more quickly. Once again the government is forgetting its older members of society

chubsta

Another point that keeps being mentioned is that it won’t affect money already in a cash isa - I wouldn’t trust this at all as the government can easily change the rules on anything they see fit so wouldn’t be surprised if they found some way around it. 

Governments of all types just seem to think our money is theirs and they can take it as they see fit.

peter021072

masonic said:

Transfers from S&S ISAs to cash ISAs would need to be stopped, otherwise the restriction would be pointless.......

If Reeves is trying to encourage stock market investing I also think this would be restricted. Am I correct in assuming the limit for swapping is theoretically unlimited at present? In which case that would serve her purpose even more than changing the 20k limit, since some people with potentially massive bull market profits will be wanting to move to safety as they grow older. 

If this is the case perhaps cash ISA rates will be depressed until it happens due to excessive demand.

Suzycoll

BadAnnie said:

I think one major point being missed here is why a lot of people use cash ISAs. Doing a, rather unscientific, poll amongst people I know that have cash isas. They use the Isa as a means of saving cash until they need it for something, this way they are not paying more tax than they need to. Needless to say most of these people are pensioners, many of whom don't have vast savings, but just too much to claim benefits so are trying to make as much use of their money as possible. They can't afford the, long term, stocks and shares volatility, as they are older and possibly have need of the cash more quickly. Once again the government is forgetting its older members of society

Spot on Annie 👍

Suzycoll

chubsta said:

Another point that keeps being mentioned is that it won’t affect money already in a cash isa - I wouldn’t trust this at all as the government can easily change the rules on anything they see fit so wouldn’t be surprised if they found some way around it. 

Governments of all types just seem to think our money is theirs and they can take it as they see fit.

Yes chubsta 
Re my previous reply that is one of the reasons I'm keeping some cash 👍

ColdIron

Suzycoll said:

booneruk said:

Suzycoll said:

I have decided to start withdrawing half my savings from my  cash ISA & put it in a safe at my house ! Call me stupid but .... Thoughts ?

You'll be guaranteed to lose money effectively - inflation will erode the purchasing power of that safe-ensconced cash.

You'll also introduce the cash to theft/fire risk.

Yes I realise that . Sadly ( and I know it's stupid) I just don't trust any government with my cash 😔 

In what way do you perceive that your cash will be safer or better protected from the guv'mint in a box at home?

I do concede that access to some cash can be important as we saw in Spain (though it was not much use during COVID), but half your savings?