Important information - investment values can go down as well as up, so you may get back less than you invest.
The government has lowered the cash ISA allowance to £12,000 for under 65s. The decision, which was announced in the Autumn Budget and will take effect from April 2027, is part of a push to get savers investing in the stock market instead. Chancellor Rachel Reeves said the UK has some of the lowest levels of retail investment in the G7.
The total annual ISA limit remains set at £20,000, and people aged over 65 can still put their full allowance in cash.
The change marks one of the biggest overhauls of the ISA regime since it was introduced in 1999 by then-chancellor Gordon Brown - and it has spooked some savers.
However, Fidelity analysis shows that blending cash and investments can help savers build long-term resilience and stay ahead of inflation.
Number crunching
Cash has a role in everybody’s portfolio. It doesn’t lose value in nominal terms, meaning it’s great for regular outgoings and emergency purchases, and acts as an important buffer against market volatility. When it comes to growing your wealth, however, it’s a different story.
We have rewound to 6 April 2017, the day the annual ISA limit was raised from £15,240 to £20,000. We have compared how your savings would have performed since then in a cash ISA, a stocks and shares ISA, and a combination of both.
Fidelity analysis suggests that someone who put £20,000 in a cash ISA on 6 April 2017 - and left it untouched - would now have £23,549. In real terms, this means they would have lost money. Prices have risen by over a third in that period, meaning the pot would need to have grown to £27,000 just to keep up with inflation1.
A stocks and shares ISA could have generated far stronger returns. £20,000 invested in a global tracker fund, such as the Fidelity Index World, in April 2017 would now be worth roughly £50,700. This equates to an annual growth rate of 12%. Please note that past performance is not a reliable indicator of future returns.
If you had put £12,000 in cash in April 2017, and your remaining ISA allowance in global shares, you would now have roughly £34,400. You would have experienced less volatility than a pure equity investor, but still have comfortably beaten inflation.
UK in focus
Since 2017, US equities have been a big driver of stock market gains. It has been a fantastic period for the technology sector, with companies like Nvidia, Microsoft and Apple turbocharging returns. This does not fully explain the discrepancy between cash and shares, however: UK stocks have also outperformed.
Rumours of a 'British ISA' did not materialise in the Autumn Budget. However, if you had packed your ISA with exclusively UK stocks you would still have outperformed cash savers by nearly 50% over the past eight years.
Regular contributions
So far, we’ve examined what would have happened if you had invested £20,000 in 2017 and not touched your money since. But what if you maxed out your ISA contributions every year?
In total, you would have contributed £180,000 - nine lots of £20,000. The total value of your pot would be far higher, however, due to interest payments and market movements.
Again, a global tracker fund would have been the most lucrative of our five hypothetical scenarios. Had you invested £20,000 every April in the Fidelity Index World, you would now have almost £335,000. If you had opted for cash instead, you would have just under £205,000.
The difference between the two portfolios is stark - but less stark than in our first example. This is because money has been drip-fed into the portfolios, rather than all invested up front. Drip-feeding tends to result in a smoother long-term performance for equities, but it can generate lower overall returns - particularly if the market is moving steadily upwards.
If you had put £12,000 in cash and £8,000 in shares every year, you would have just over £255,000.
Role of cash
Cash and investments both play important - and different - roles - in your finances. The face value of your cash won’t decrease unless you spend it, whereas investments can fall in value. The compensation for taking that risk, however, is the potential for significantly higher returns.
This is a key consideration when picking an ISA - and something to remember in the aftermath of Budget day.
| (%) As at 31 Oct |
2020-2021 | 2021-2022 | 2022-2023 | 2023-2024 | 2024-2025 |
|---|---|---|---|---|---|
| FTSE All-Share | 35.4 | -2.8 | 5.9 | 16.3 | 22.5 |
| Fidelity Index World | 31.1 | -1.5 | 4.1 | 27.0 | 20.2 |
| Cash | 0.0 | 0.6 | 4.2 | 5.4 | 4.6 |
Past performance is not a reliable indicator of future returns.
Source: LSEG, total returns from 31.10.20 to 31.10.25. Excludes initial charge. ICE BofA British Pound 3-Month Deposit Offered Rate is used as a proxy for cash.
Source:
1 BOE Inflation calculator
Important information: - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Overseas investments will be affected by movements in currency exchange rates. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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