The Isa savings system should be revitalised to help shelter beleaguered savers and struggling first-time buyers from taxation, campaigners have said.
Savers have been experiencing the "perfect storm" of an all-time low bank rate giving them little real return on their cash pots, combined with high living costs and tough employment conditions. From April, £11,280 can be invested in a stocks and shares Isa, and up to half of this (£5,640) can be saved in a cash Isa.
But Nationwide is calling for Chancellor George Osborne to raise the cash Isa limit to £10,680, double its current limit, to help savers concerned about the erosion of their income caused by inflation as well as first-time buyers trying to save a typical 20% deposit.
An increased Isa allowance could help offset the blow being dealt to first-time buyers later this month with the ending of a two-year stamp duty concession for this sector of the market.
Graham Beale, chief executive of Nationwide, said: "Many savers prefer the security of cash savings, but the current Isa restrictions are limiting the amount they can save tax-free. If the cash Isa limit is increased to £10,680 from its current limit of £5,340 it will not only help savers address the inflationary pressures, but also help borrowers struggling to raise a deposit."
The typical savings interest rate has plummeted from 6.52% in 2008 to less than 3%, while current account customers have increasingly found they are earning no interest at all as several banks have slashed interest rates to zero.
More than £100 billion is sitting in accounts which are paying no interest, according to Bank of England figures, compared with around £15 billion to £20 billion in the years before the financial crisis.
Ros Altmann, director-general of over-50s group Saga, said low interest rates and quantitative easing have hit annuity rates, resulting in more than a million pensioners buying an annuity which will give them a lower pension for the rest of their lives.
The Building Societies Association (BSA) said it seemed "illogical" to set the cash Isa limit at half the overall allowance, "giving those nervous of stocks and shares access to only half of their annual Isa allowance". The body said transfers should be permitted from stocks and shares Isas to cash Isas.
The BSA said: "This change would make adult ISAs consistent with the new Junior Isa. It would allow savers, particularly those approaching retirement, to transfer into less volatile cash investments, protecting their nest egg."