ISA Cash Cap Dropping to £12,000 in 2027: What It Means For Your Savings

In the Autumn Budget 2025, the Chancellor confirmed a significant change to ISA rules: from April 2027, savers will only be able to deposit up to £12,000 into cash ISAs each tax year. The overall £20,000 ISA allowance remains, but the balance must go into Stocks and Shares ISAs, Innovative Finance ISAs, or Lifetime ISAs. This is a major shift for the millions of people who rely on cash ISAs as their primary savings vehicle.

Current ISA Limits

Under the current rules for 2025/26 and 2026/27, you can deposit up to £20,000 per tax year across all your ISA accounts. You can split this however you like between:

• Cash ISA – tax-free interest on savings
• Stocks and Shares ISA – tax-free gains and dividends on investments
• Innovative Finance ISA – tax-free returns from peer-to-peer lending
• Lifetime ISA – up to £4,000 per year with a 25% government bonus (for first homes or retirement)

Currently, there is no restriction on how much of your £20,000 allowance goes into cash. Many savers put the entire amount into a cash ISA for simplicity and safety.

What Is Changing From April 2027

From the 2027/28 tax year onwards, a new £12,000 sub-limit will apply to cash ISA deposits. The total ISA allowance stays at £20,000, but you can only put £12,000 of that into a cash ISA. If you want to use the full £20,000 allowance, the remaining £8,000 must go into investments such as a Stocks and Shares ISA.

The government's stated aim is to encourage more people to invest in the stock market rather than holding large cash balances. The Treasury estimates that around £300 billion sits in cash ISAs, money that could be generating higher returns and supporting UK businesses through equity investment.

How This Affects Savers

The impact depends on how you currently use your ISA allowance:

If you save less than £12,000 per year in cash ISAs

You will not be directly affected. You can continue to save as you do now. However, you may still want to consider whether investing some of your savings could provide better long-term returns, especially with interest rates likely to fall over the coming years.

If you save more than £12,000 per year in cash ISAs

You will need to adjust your strategy. From April 2027, any ISA contributions above £12,000 will need to go into a Stocks and Shares ISA or other non-cash ISA type. This does not mean you have to pick individual stocks. Many providers offer low-risk investment options such as money market funds, bond funds, or multi-asset portfolios that sit somewhere between the risk of cash and equities.

Existing cash ISA balances are safe

The new cap applies only to new contributions from April 2027. Any money already held in cash ISAs is unaffected and will continue to earn tax-free interest. You do not need to move existing savings.

Strategies to Prepare

1. Max Out Your Cash ISA This Year and Next

For the 2025/26 and 2026/27 tax years, you can still put up to £20,000 into a cash ISA. If you have savings you want to shelter in cash, consider making the most of the current rules before the cap takes effect.

2. Start Building a Stocks and Shares ISA

If you have never invested before, start small. Many platforms let you open a Stocks and Shares ISA with as little as £1. Begin with a diversified global index fund and get comfortable with how the market works before you need to rely on it for your full ISA allowance. Use our ISA Optimizer to model the long-term difference between cash and investment ISAs.

3. Consider Low-Risk Investment Options

A Stocks and Shares ISA does not have to mean volatile stock picking. Money market funds and short-duration bond funds offer returns close to cash rates with very low volatility. These can be a good stepping stone for cautious savers.

4. Keep an Emergency Fund in Cash

The £12,000 cash ISA limit still provides ample room for an emergency fund. Financial advisers typically recommend three to six months of expenses in easily accessible cash. For most people, £12,000 covers this comfortably.

The Bottom Line

The cash ISA cap is a nudge towards investing, not a penalty for saving. For many people, it is an opportunity to start thinking about long-term wealth building through investments while still keeping a solid cash safety net. The key is to act before April 2027: maximise your cash ISA contributions now, and start learning about investment ISAs so you are prepared when the new rules take effect.

Use our ISA Optimizer to see how different ISA strategies could affect your savings over 5, 10, and 20 years.