With the Cash ISA allowance preserved, attention returns to a familiar question: how much should be held in cash and how much invested? Rachael Griffin, Head of Tax and Trusts at Quilter, explores the factors shaping that decision.
The planned cash ISA cut is off the table – but the choice between saving and investing remains. Budget 2026 preserves eligible adults’ ability to save up to £20,000 a year in cash ISAs. For clients, the bigger question is not simply how much they can hold in cash, but what they need their money to do.
What has changed?
From 6 April 2027, the proposal would have capped cash ISA contributions at £12,000 for under-65s, while leaving the overall ISA allowance at £20,000. The remaining allowance could have gone into eligible non-cash ISAs. Those aged 65 and over would have kept the full cash allowance.
That age-based distinction has now been dropped. But there is no extra allowance: the £20,000 annual limit remains shared across adult ISAs, not available separately for cash and stocks and shares. Individual product restrictions still apply.
Cash: stability, with a trade-off
Cash can provide stability for an emergency fund or a near-term purchase, subject to the account’s access conditions. Within a cash ISA, interest is free from UK income tax and does not use the personal savings allowance.
But a stable balance is not the same as stable purchasing power. If prices rise faster than interest, cash buys less over time – even inside an ISA. Some clients can also earn tax-free interest outside an ISA using available allowances. So, rates, access conditions, withdrawal penalties, and returns after tax all matter.
There is also no longer a reason to rush contributions simply to beat the proposed April 2027 cut. Annual allowances still expire, however: unused allowance cannot normally be carried forward.
Investing: growth potential, with risk
For longer-term goals, investing may offer growth potential where cash struggles to keep pace with inflation. That opportunity comes with uncertainty. Investment values and income can rise as well as fall, and clients may get back less than they invest. A longer time horizon does not remove that risk.
This need not be an either-or decision. Cash and investments can serve different purposes within the same plan. The appropriate balance depends on when money will be needed, access requirements, attitude to risk, and capacity for loss – not simply the allowance available.
The government also plans to explore an ISA incentive for first-time investors, with details still to come. Meanwhile, the reversal should prompt a review, not an assumption that cash is best. A financial adviser can help clients weigh short-term stability against long-term growth potential in the context of their wider plans.
Based on announcements at 29 October 2026; implementation remains subject to relevant legislation. Tax treatment depends on individual circumstances and may change. This article provides general information only and is not personal financial advice.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own at the date of publishing and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
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