The changes will reshape how Cash ISAs and Stocks and Shares ISAs can be used, introducing new restrictions on cash holdings and transfers. According to figures reported by Paragon Bank, the surge in balances reflects continued demand for tax-efficient savings, particularly fixed-term products.
The latest data highlights how savers have responded well before the new rules come into force. Adult Cash ISA balances rose between January and May, while balances held outside ISAs declined slightly over the same period.
Cash ISA Balances Rise as Savers Prepare for Allowance Changes
According to Paragon Bank, the average adult Cash ISA balance increased from £17,264 in January to £17,848 by May. Over the same period, average balances held in non-ISA accounts edged down from £11,513 to £11,416.
Fixed-term Cash ISAs accounted for most of the increase. Their total balances rose by £28.8 billion to reach £269.9 billion, as customers locked in available rates amid expectations of lower interest rates and forthcoming changes to the tax-free savings system. Instant access Cash ISA balances also increased, rising by £9.6 billion to £203.5 billion.
Andrew Wright, head of savings at Paragon Bank, said the £38 billion increase showed that savers continued to recognise the value of shielding interest from tax. According to Wright, many customers appeared to have made greater use of their ISA allowance during the busy ISA season, while the strong growth in fixed-term products suggested that savers wanted to secure competitive rates before market conditions changed.
He also urged customers to review their existing accounts before the reforms take effect, advising them to understand how much of their allowance they are using and to ensure their savings remain appropriately positioned.
New ISA Rules Will Introduce Different Limits and Restrictions
The reforms announced during the Autumn Budget 2025 will reduce the Cash ISA allowance for people under 65 from £20,000 to £12,000 from April 2027. The allowance for Stocks and Shares ISAs and Innovative Finance ISAs will remain at £20,000, while people aged 65 and over will continue to benefit from a £20,000 Cash ISA allowance.
According to the Government, the measures are intended to encourage greater retail investment while preserving flexibility for legitimate investment activity within non-Cash ISAs. Under the new rules, investors will still be able to hold cash within a Stocks and Shares ISA, although a flat-rate 22% charge will apply to interest earned on those cash holdings. The charge will be paid by ISA managers directly to HM Revenue & Customs.
The reforms will also prevent Stocks and Shares ISAs from being invested entirely in Money Market Funds, which will be classified as cash-like assets for these purposes. Such funds will remain permitted only as part of a mixed investment portfolio alongside qualifying investments such as shares or bonds.
Transfers from non-Cash ISAs into Cash ISAs will also be prohibited for savers under 65, although transfers in the opposite direction will remain permitted. For those aged 65 and over, this transfer restriction will no longer apply, although the 22% charge on cash held within non-Cash ISAs and the restriction on fully cash-like portfolios will remain in force.
The proposals have attracted criticism from some financial advisers. Rob Mansfield of Rootes Wealth Management argued that repeated changes undermine the simplicity that has traditionally defined ISAs, while David Stirling of Mint Wealth described the new framework as likely to create confusion because of the differing rules based on age and the restrictions applying to younger savers.
