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Rumours are swirling that the Chancellor could slash the cash Isa allowance in her Budget – but I’ve spotted a fatal flaw with this plan.
At the moment, you can split your £20,000 annual Isa allowance as you choose between cash and stocks and shares.
Some fear the cash element could be cut in Rachel Reeves’ Budget on November 26 – perhaps even to as little as £4,000 a tax year.
But what I want to know is what would stop someone from putting up to their full allowance into a stocks and shares Isa and transferring it further down the line?
That is certainly possible under the current rules.
If the Chancellor wants to stop savers from doing this, she will have to add another layer of complexity to the Isa system to prevent them from moving their money around as they choose. That will require yet more tinkering, which will cause further confusion for Isa savers and investors.
> Check the best cash Isa rates in Sylvia Morris's independent tables
It is up to you to ensure that you don’t bust your Isa limit in any tax year. Different allowances for various Isas will make keeping track more difficult.
Such restrictions would also make it harder for those who already hold stocks and shares Isas to switch to top cash deals.
And it would make it harder for investors who wish to take profits on their investments or to move some of their money out of the stock market and into cash for a short time to escape volatility, or to take on less risk as they get older.
Let’s hope the Chancellor sees sense and leaves things as they are.
She was reportedly considering changes in May, but hit pause after a successful Hands Off Our Cash Isas campaign by Money Mail and This is Money – and work behind the scenes by the savings industry.
Back then, Ms Reeves confirmed the annual tax-free allowance wouldn’t be reduced from £20,000.
But she did not rule out a cut to the cash Isa allowance. We don’t know if the rules will be changed, but I’d advise savers to take advantage of their Isa allowance whatever happens.
Saving into an Isa means that you are protected from tax on your interest – which is otherwise payable once you exceed your personal savings allowance.
Basic-rate taxpayers have an allowance of £1,000, higher-rate taxpayers have £500 and additional-rate have no allowance at all.
Atom saver account rate bombs again
Bad news for savers from smartphone bank Atom, which has cut the rate on its Instant Saver Reward again.
From October 23, it will pay a lacklustre 3.75pc a year in months you don’t make a withdrawal and 2pc in those that you do.
The rate has fallen dramatically from a healthy 4.75pc and 3pc (respectively) in just three months.
Meanwhile, digital rival Cahoot has launched a new issue of its Simple Saver (Issue 13) at 4.4pc.
You earn this rate for 12 months after which your money is transferred into Cahoot Savings where it earns a lousy 1pc.
If you opened Issue 12 of this account, on sale from September 25 to October 9 at 4.2pc, upgrade to this newer version to squeeze as much interest as possible out of your savings.