Savers are being encouraged to take advantage of ISAs before Chancellor Rachel Reeves implements rumoured changes to the tax-free savings allowance in the upcoming Spring Budget.
Research has found that stocks and shares ISAs have dramatically outperformed their cash counterparts over the past year, delivering returns more than three times higher for British savers.
The latest analysis from Moneyfactscompare.co.uk reveals that stocks and shares ISAs achieved an impressive average growth of 11.86 per cent between February 2024 and February 2025.
In stark contrast, cash ISAs returned just 3.80 per cent during the same period. This marked improvement follows a challenging period for investment ISAs, which saw negative returns of -3.27 per cent between February 2022 and February 2023.
With this robust performance, equity-based savings vehicles are seeing a significant turnaround, which had previously lagged behind cash ISAs for two consecutive years.
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It is understood that the Chancellor is weighing significant reforms to ISA regulations by slashing tax-free allowance from £20,000 to just £4,000 per year.
This rumoured reduction follows recent discussions at 11 Downing Street, where senior City executives and fund managers pressed for changes to the current system.
These industry leaders are pushing for reforms that would encourage greater investment from British savers into the markets. Market performance varied significantly across different investment sectors, highlighting both opportunities and risks for British investors.
North American funds led the charge with an exceptional 24.43 per cent growth over the past year. UK Equity Income demonstrated robust performance, delivering 14.50 per cent returns, while Japanese markets achieved a solid 10.08 per cent growth.
However, some sectors faced significant challenges, with Latin American funds declining by more than 10 per cent The volatile nature of market performance was further illustrated by China's remarkable turnaround, shifting from a 30 per cent decline in 2023-24 to over 20 per cent growth in the past year.
Finance expert Rachel Springall from Moneyfactscompare offered a measured perspective on these market developments.
"A stocks & shares ISA is suitable for those who intend to invest over the longer-term, as fund performance can fluctuate over shorter-term timescales," she explained.
She emphasised the importance of regular portfolio reviews and seeking professional advice when necessary.
Springall noted that while the recent performance is encouraging, investors should remain cautious.
"Past performance is never guaranteed to be reflected in future returns," she warned, adding that the significant rise in stock markets may not be sustained.
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Rachel Reeves is reportedly understood to be considering changes to ISA allowances GETTY Despite the strong performance of investment ISAs, cash alternatives continue to play a vital role for risk-averse savers.
The steady returns of cash ISAs, maintaining around 3.80 per cent, offer certainty in an uncertain market environment.
"Cash ISAs still have their part to play for customers, particularly the more risk averse," noted Springall. She highlighted that the government's freeze on income tax thresholds makes cash ISAs increasingly attractive for higher-rate taxpayers, who face a reduced Personal Savings Allowance.
Easy access cash ISAs also provide an important option for those requiring immediate access to their savings.
