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There has been some speculation about the cash ISA recently, so if you’re a fan and you’re worried its days are numbered, there’s some good news — there’s absolutely no indication that the cash ISA is on its way out.
That hasn’t stopped an alarming amount of speculation. It kicked off after reports that city firms had met with UK chancellor Rachel Reeves, and suggested some of the money in cash ISAs could boost growth if it was invested instead. They said there could be some limits placed on the cash ISA in the hope it would encourage investment instead of saving.
This is stressful news for the millions of savers who rely on the cash ISA, but there are several good reasons not to panic. The first is that so far, the government has said nothing, so there’s no indication at all that any changes might be forthcoming. It remains pure speculation.
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There’s also the fact that cash ISA money isn’t sitting idly around while investments could be working hard for the broader economy. In fact, the Building Societies Association is said to have written to the chancellor highlighting that the money in cash ISAs is put to work by banks and building societies and used to fund mortgages. Having a functioning mortgage market is also key to a growing economy.
In addition, you have to question whether making changes to the cash ISA would actually persuade more people to invest — or whether it would simply expose more diligent savers to tax.
Reducing the tax incentives from cash ISAs isn’t the answer, because the big barrier to encouraging greater investment is not the ISA family of products. A major part of the issue is that not enough people have the confidence to invest.
There’s more that can be done to help people overcome this. At the moment, there’s a review underway into how better to guide people to good financial decisions and outcomes without having to pay for advice. This will mean businesses can offer more targeted support and guide people to move long term savings into investment.
If all this ISA talk comes to nothing, we know from experience that rumours themselves can do damage. We can learn from the drama surrounding pensions tax free cash in the run up to the autumn budget last year. There was an awful lot of talk, some people felt pressured into taking cash they didn’t need, and in the end nothing happened. Rumours like this risk reducing faith and confidence in the stability of system.
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If you’re worried by all the talk, there’s no need to feel you have to do anything you weren’t already planning. If you were already planning to open a cash ISA in the current tax year, then you might want to do so sooner rather than later if it brings you peace of mind. This has the added benefit of taking advantage of some great deals while they’re still around. Plenty of people are already doing this, which has kicked off the start of the cash ISA season early this year.