Over half (52%) of active cash ISA savers have indicated they will utilise their full £20,000 allowance before the new cap comes into force in 2027, new research by Paragon Bank has indicated.

The cash ISA allowance will reduce to £12,000 from April next year, meaning the remaining £8,000 must be used for stocks and shares ISAs.

Paragon’s research, based on a study of over 1,100 active cash ISA savers under the age of 65, suggested that savers are reluctant to move away from cash savings once the allowance is reduced, however.

According to the study, 46% of respondents said they would divert savings into a non ISA account once the cash ISA limit is lowered. It revealed that 29% would invest into a stocks and shares ISA, while 16% said they would use premium bonds, and 15% said they would increase pension contributions.

When asked directly how likely they would be to invest into a stocks and shares ISA instead of cash, 62% said it was unlikely. Most savers had concerns around the risk of losing money (72%), stock market volatility (62%), fees and charges (40%), lack of knowledge (30%) and complexity (21%) as key barriers to investing.

“This research shows just how strongly under 65s value the certainty and tax efficiency of cash ISAs,” head of savings at Paragon, Andrew Wright, said.

“For many, these products play a central role in long term financial planning, whether that’s building security, saving for retirement or simply protecting hard earned returns from tax.”

When asked why they believe the Government has made the decision to reduce the cash ISA threshold, over half of respondents (52%) said they think it is to increase tax revenue, while two fifths (41%) believe it is intended to encourage more people to invest in stocks and shares ISAs.

Paragon found that 89% of savers said the cash ISA limit should remain at its current level, as the research uncovered negative attitudes towards the planned reduction to the threshold.

The study found that 50% felt disappointed by the change and a further 22% said they were frustrated. By contrast, just 10% said they were accepting of the change, while fewer than 1% said they felt positive about it.

“The strength of feeling around the planned reduction in the cash ISA allowance highlights a clear disconnect between the planned changes to the cash ISA threshold and saver preferences,” added Wright.

“While there is an assumption that people will shift into investing, our findings show even active ISA users remain uncomfortable with the risks involved and prefer the safety of cash, even if returns are lower.”

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