Halving the cash ISA allowance would add 13 years on to the time it takes to save £500,000 in the average cash ISA, new research from Investec Save has shown.
The analysis comes amid rumours Chancellor Rachel Reeves is considering cutting the current yearly total ISA allowance from £20,000 to £10,000 for cash ISAs.
Currently, the average cash ISA pays a rate of 2.79% a year. A saver depositing £20,000 a year into the typical cash ISA would take 19 years to reach the half a million-pound milestone, with interest compounded and assuming no withdrawals. This drops to 17 years for those with a current top 10 cash ISA paying an average rate of 4.17%.
However, if the Chancellor halves the allowance, a saver depositing £10,000 a year into the average cash ISA would take 32 years to save £500,000.
David Hunt, head of deposits at Investec, said: “Halving the annual cash ISA allowance would make it significantly harder for savers to build meaningful long-term wealth.
“Our analysis shows that saving £500k in a cash ISA could take an extra 13 years under the rumoured changes. This highlights just how powerful consistent saving and the effect of compound interest can be over time, but also how sensitive those outcomes are to policy changes.
“The ISA has been one of the most successful savings vehicles in the UK, encouraging millions to save tax-efficiently for the future. Reducing the annual limit would inevitably slow that progress for ordinary cash ISA savers, particularly those who are disciplined about maximising their yearly contributions.”
Main image: jr-korpa-9XngoIpxcEo-unsplash
