Martin Lewis says Cash ISA limit cut 'likely' with cap slashed as low as £10,000

Cash ISA limits could be cut as low as £10,000, predicts money expert Martin Lewis. Though the government has yet to absolutely confirm that it will change Cash ISA limits, it's been heavily rumoured for months that Chancellor Rachel Reeves is looking to adjust the current £20,000 limit downwards in a bid to push households into investing instead of hoarding cash savings.

Money Saving Expert founder Martin Lewis said today that he thinks a cut to the Cash ISA limits is "likely" although he is less certain than he was before. The government was urged by a financial firm to slash limits as low as £4,000, but Martin Lewis thinks that if a cut does get announced next week, it will be £10,000 or £15,000.

Martin tweeted: "I'm now pretty sure the Cash ISAcut if it happens - and it's still likely on balance of probability, but I'm less convinced than I was - won't be to £4,000 (that was a proposal by a finance firm).

"I suspect it'll be more like down to £10,000 or £15,000."

But Martin Lewis has moved to quiet concerns as he said any rule changes would not affect existing deposits.

Martin added: "CASH ISAs. While it's never really been in doubt, as people ask me, I've now had 100% confirmation from Govt that "retrospective changes would not be considered under any scenario."

"I.e any money in cash ISAs before any possible limit change won't be impacted."

Martin told his followers that he has made his own recommendations to the government about what it should do instead of cutting Cash ISAs, centred around a 'starter investment ISA'.

He said: "The suggestion I've made to the govt instead of cutting cash ISA limit... launch a "starter investment ISA."

"The thought behind cutting the cash ISA allowance is to encourage, especially younger people, to invest instead via stocks & shares ISAs (which in the long run is likely to be better for them and the economy).

"I think it's unlikely to work, if people want savings, they want savings. It's also unfair to deny older people, who have to be more risk averse when trying to nudge younger people. As the govt has repeatedly said none of this is about raising revenue, I've suggested an alternative concept...

"Launch a new "Starter Investment ISA" you can put say up to £1,000 in (whether lump sum or dripped in monthly) and as well as it being tax-free you'll get for example a 5% boost on contributions from from State (with the cost split between investment providers and the state) as long the money is kept in investments for a set time (eg 1yr)."

Any changes to Cash ISAs, if they do happen, are likely to be announced on Tuesday, July 15 at Chancellor Rachel Reeves' Mansion House speech.

Andrew Prosser, head of investments at InvestEngine, said: "It's been over 25 years since ISAs first launched. Their success is beyond doubt, with over 22 million people in the UK now having accounts.

"The main reason the Chancellor is looking to cut cash ISA limits is to encourage more people to invest, given only 15 per cent of all account holders are using stocks and shares ISAs to invest their funds.

"It's understandable why Rachel Reeves wants to look at whether they are doing their job of encouraging people to invest as well as save, but simply cutting the cash component of ISAs is unlikely to have the intended impact of getting more people investing.

"The two age groups most likely to contribute to a cash ISA are aged 25-34 and 65 and over. Younger savers are likely using cash or lifetime ISAs to fund big life purchases like a house deposit, while older savers are using them to fund short-term spending needs. Neither of these groups will want to risk the value of their funds fluctuating, as it would with investing. It's more likely that they simply continue to hold the same amount of cash, but as the cash ISA limit would be lower, more of it would be outside the ISA tax wrapper.

"UK savers may well end up worse off, as they'd have to pay more tax on interest on their savings."