With the Cash ISA allowance set to fall from April 2027, new analysis from St. James’s Place highlights the potential long-term cost of remaining in cash and the opportunities available to investors willing to take on market risk.
The planned reduction in the Cash ISA allowance from April 2027 could prompt more savers to consider investing, according to analysis from St. James’s Place (SJP).
From 6 April 2027, the maximum amount that can be held in a Cash ISA each year is due to fall from £20,000 to £12,000 for those under 65, while the overall ISA allowance will remain at £20,000.
Savers wishing to maximise their annual ISA allowance will need to direct the remaining £8,000 into a stocks and shares ISA, an Innovative Finance ISA or hold it outside a tax-efficient wrapper.
While the changes are likely to draw attention to ISA planning, SJP believes they also create an opportunity to revisit the role of cash and investments within long-term financial plans.
The firm’s analysis suggests that an individual who invested £8,000 in global equities and placed £12,000 in a Cash ISA in October 2016 could now have a combined pot worth around £40,900.
By comparison, someone who placed the full £20,000 into a Cash ISA linked to the Bank of England base rate would have accumulated around £24,400 over the same period.
The difference becomes even more pronounced when comparing cash with a fully invested approach. According to SJP’s calculations, a £20,000 investment in global equities over the period would now be worth around £65,700.
The research also highlights the impact of inflation on cash savings. SJP estimates that £20,000 growing in line with CPI inflation since 2016 would now equate to around £28,400, suggesting that cash returns over the period would not have maintained purchasing power.
Claire Trott, head of advice at St. James’s Place, said: “While Cash ISAs can be important, especially when it comes to meeting short-term needs, over the longer-term holding too much in cash can mean the real value being eroded by inflation and missing out on stronger growth from investing.”
She added: “With the Cash ISA allowance set to decrease in less than six months, now is a good opportunity for people to reconsider how they balance cash and investments.”
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 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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